The Efficiency And Effectiveness Of Business Processes

Published Date: 02 Nov 2017

ABSTRACT

This paper analyzes which reasons persuade small and medium enterprises (SMEs) to adopt information technology (IT), as well as which factor and how affect the level of IT sophistication in this entrepreneurial segment. Drawing on the technology-organization-environment view of the firm, the study hypothesizes that technological, organizational and environmental factors can be viewed as the reasons for IT sophistication within SMEs. Our proposed research model and hypotheses are tested using survey data from a sample of 121 Iranian manufacturing SMEs. We find that external pressure, information processing needs, IT-enabled innovativeness and performance and competitive pressure are the key drivers of IT sophistication within SMEs. The findings offer valuable insights to executives and consultants that why SMEs move toward IT adoption. Likewise, the results of this study could serve as a benchmarking measure of reasons persuading SMEs to adopt sophisticated IT. Keywords: IT adoption, technology management, OM in emerging economies, OM-information systems link, manufacturing SMEs

INTRODUCTION

The adoption of information systems is a significant subject matter of study in numerous areas of Manufacturing Industries. To be able to describe the process of information system (IS) adoption, it is important for us to identify and categorize the different factors, drivers, enablers and barriers entangled in the adoption of Information systems. Some writers argue that drivers and barriers might be similar to factors with either positive or negative influences over IS adoption (Cripps, H., Salo, J., & Standing, C., 2009, Sarosa, S., & Zowghi, D., 2003). Contrarily there other scholars (e.g., He, M., & Chen, J, 2008, Lyons, M.H., 2005, Nguyen, T.U.H., 2009) that have defined and classified IT drivers, barriers and affecting factors and separated them in specific categories. Here they state that the drivers act as the main reasons why organizations adopt IS. In this circumstance, the drivers and barriers to IS adoption in organizations can often be the reverse to each other (Cripps, H., Salo, J., & Standing, C,2009). Hence, drivers of IS adoption can be defined as a collection of internal and external reasons which persuade manufacturing industries to move toward implementation of Information systems solutions. Also, the big diversity of perspectives toward drivers that persuade manufacturing industries to adopt Information systems is available on a huge body of literature. Most of these perspectives have concentrated on the benefits of IS persuading manufacturing to adopt Information systems solutions. Nevertheless, it should be considered that the manufacturing industries movement toward IS is also attributable to inter-organizational and intra-organizational drivers, which force them to implement IS. In this document, the term IS sophistication driver includes a collection of external and internal reasons that persuade manufacturing industries to move toward implementing and using sophisticated IS solutions. Thus, this paper aims to answer more clearly and understandably the question why Manufacturing Industries are increasingly adopting IS and which factors are affecting the level of IS sophistication. Likewise, this study addresses and discusses specific issues attributable to the unique characteristics of manufacturing industries, those issues that differentiate these businesses from their larger counterparts on the subject of reasons for IS sophistication.

Literature review

IT can enhance the efficiency and effectiveness of business processes per se and in an absolute sense (e.g., regarding the cost and/or quality of processes before and after using IT) (Ray, G., Muhanna, W.A., & Barney, J.B.2005). It has been argued that organizations decide to adopt IT tools since IT leveraging competence in businesses can develop firms' scope by enhancing knowledge reach and richness, improve firms' flexibility through increased accessibility and availability of knowledge, and accessibility and availability of knowledge by improving communication and increasing information sharing efficiency (Pavlou, P.A., & El Sawy, O.A.2006). Likewise, some scholars perceive IT contribution to the management of knowledge and knowledge management system change as a key source of improved firm performance within SMEs in studying competiveness and innovativeness from knowledge management perspective too (Bhagwat, R., & Sharma, M.K., Levy, M., Loebbecke, C., & Powell, P.2003). IT is a mechanism that enables SMEs to response to customer requirements efficiently by enabling information to be transmitted. SMEs endeavor to manage the knowledge sharing process and inter-organizational knowledge processes which perform a prominent role in achieving greater firm value (Sabherwal, R., & Sabherwal, S.2005). In addition, SMEs make use of IT in order to achieve effective collaboration or simultaneous cooperation and competition through sharing business knowledge with other members of the cluster, knowledge which may be considered to have provided that company with a competitive position (Levy, M., Loebbecke, C., & Powell, P.2003). Moreover, prior IS research goes beyond the direct effect of IT resources arguing that it is not generic IT, per se, that impact relative process performance, rather, higher-order process capabilities as the mediators between IT resources and firm performance provide better justification of IT enabled performance gain (Bharadwaj, S., Bharadwaj, A.S., & Bendoly, E.2007). IT can indirectly make firms more agile a group of IT-enabled capabilities (i.e., digital options) in the form of digitized work processes and knowledge systems to enhance firms' capability to sense and respond to environmental change (Overby, E., Bharadwaj, A., & Sambamurthy, V.2006). Higher-order supply chain integration capability was found to be another IT enabled higher-order process capability generating significant and sustainable performance gains (Rai, A., Patnayakuni, R., & Seth, N.2006). In the context of interface between IT and innovativeness and productivity within businesses, Benitez-Amado et al. (Benitez-Amado, J., Llorens-Montes, F.J., & Perez-Arostegui, M.N.) found that IT resources lead to a superior firm market performance through the capability of innovation-supportive organizational culture. With regard to the immense supports of previous literature on the subject of contribution of IT to the enhancement of business value (Liang, T.P., You, J.J., & Liu, C.C.), it is plausible to assume that IT sophistication might result in higher performance gain in businesses. Level of IT investment and acceptance 10(regarding the usage) affect knowledge management capability and subsequently organizational performance (Kuo, Y.K., & Ye, K.D.2010). Lower production cost and lower total operating cost of firms (Hu, Q., & Quan, J.2005), as well as increased business productivity (Francalanci, C., & Morabito, V.2008) were found to be obtained due to higher IT investment levels. Refereeing to resource-based theory which presumes that businesses can possess a competitive advantage based on resources that are firm-specific, valuable, rare, imperfectly imitable and not strategically substitutable by other resources (Barney, J.B.1991), and consistent with Tippins and Sohi (Tippins, M.J., & Sohi, R.S.2003) and Wu et al. (Wu, F., Yeniyurt, S., Kim, D., & Cavusgil, S.T.2006), we argue that to manage IT as a firm-specific resource and consequently enhance its appropriateness for firm, it has to dash ahead of competitors IT resources. In other words, when advanced IT becomes unique and imperfectly mobile across firms, firms adopting and using these advance IT tools ahead of competitors increases the feasibility of acquisition of exclusive benefits through higher efficiency and performance gains. As a result, top executives having higher managerial understanding of the relative advantage of a unique IT may indeed be more inclined to allocate the managerial, financial, and technological resources necessary to adopt and use IT innovations (Oliveira, T., & Martins, M.F.2010). Therefore, we propose that SMEs with higher intention to gain IT-enabled organizational improvements use more sophisticated IT.

On the other hand, we believe that another rationale for SMEs to adopt and use more sophisticated IT is to respond to information processing needs, which is defined as the gap between information required and information available (Anandarajan, M., & Arinze, B.1998). Based on this perspective, new information requirements raised from internal and environmental uncertainty is a major driver of 11firm movement toward adoption of sophisticated IT. These uncertainties are attributable to the production methods, supply chains, industry clock speed or the larger competitive scenery. SMEs could invest on IT to increase their information processing capacity and their flexibility to effectively tolerating and managing uncertainties and supporting decision-making process mechanism (Karimi, J., Somers, T.M., & Gupta, Y.P.) since fitted information processing capabilities of a firm with its information processing requirements can result in improved business strategy and better firm performance (Keller, R.T.1994). Organizations with higher information processing requirements are the deep adopters of IT innovations (Melville, N., & Ramirez, R.2008). The rationale behind is that in order for effectively responding to mentioned uncertainties, firms should adjust their information processing capabilities with their newly created information needs (Wang, E.T.G.2003). According to Tushman and Nadler's (Tushman, M.L., & Nadler, D.A.1978) information processing requirements paradigm of IT innovation diffusion, firms must face increased uncertainty and subsequently new information processing requirements when environment becomes more unstable, interdependency of inter-organizational tasks become more complex and when these task become less routine. Developing Tushman and Nadler's (Tushman, M.L., & Nadler, D.A.1978) paradigm, Melville and Ramirez (Melville, N., & Ramirez, R.2008) suggest that process complexity, clock speed and supply chain complexity are major industrial-level sources of information processing requirements while, IT-based production control and e-supply chain management are two basic information processing capabilities in firms. To sum up, it could be concluded that information processing has provided a substitute justification for IT adoption in SMEs. In high dynamic and recent turbulent environment, IT plays a significant role as a major enabler of information processing capacity to process increased volume of information needs. Thus, we propose that SMEs with greater information processing requirements use more sophisticated IT From the other perspective, some scholars argue that movement toward IT could be a response or reaction to an event or this change has its origin in the pressure from customers and an emphasis on improving efficiency, as well as pressure from the internal and external environment example (Pavlou, P.A., & El Sawy, O.A.2006). A study by Iacovou et al. (Iacovou, C.L., Benbasat, I., & Dexter, A.S.1995) using TOE framework to study reasons for IT adoption within British SMEs discusses that external pressure exerted by trading partners was the main determinant of IT adoption within these firms. In SMEs, it has been largely demonstrated that delivering higher level of customer service and better communication with distant partners/customers are some of the major determinants of IT adoption .

From a similar perspective, Mehrtens et al. (Mehrtens, J., Cragg, P.B., & Mills, A.M.2001) discuss that issue of credibility has risen as a significant motivator for adopting IT tools within SMEs. They argue that this credibility could be achieved through fulfilling customers and suppliers’ pressure and significantly their expectation of receiving better services as well. We believe that possible rationale for businesses to pressure their trading partners to adopt and use more sophisticated IT is to guarantee the success of ebusiness. Empirical evidence suggests that successful e-business is highly dependent upon trading partners’ readiness to jointly adopt and use IT tools (e.g., EDI), as well as higher level of IT usage [Barua, A., Konana, P., Whinston, A.B., & Yin, F.2004, Oliveira, T., & Martins, M.F.2010, Zhu, K., Kraemer, K., & Xu, S.2003]. Hence, it is hypothesized that SMEs undergoing greater external pressure use more sophisticated IT.

In addition to pressure from distant trading partners driving business to use IT, drivers for IT adoption in SMEs could be also attributed to the firms’ desire and need to be competitive as a necessity for their survival (Oliveira, T., & Martins, M.F.2010). Referring to the dynamism of recent competitive business environment in which dynamic capabilities are crucial for the survival of businesses (Barrales-Molina, V., Benitez-Amado, J., & Perez-Arostegui,2010), IT plays a significant role as the facilitator of higher order dynamic capabilities (Benitez-Amado, J., Llorens-Montes, F.J., & Perez-Arostegui, M.N,2010. Makadok, R.2001). Thus, it seems rational to believe that the competitive pressure impacts the adoption of novel IT when SMEs perceive that IT resources may strengthen their competitive position and assist them to achieve superior firm performance for example Premkumar, G., & Ramamurthy, K. It has been suggested that by using advanced IT, SMEs may indeed be able to change the rules of competition, alter the industry structure, and leverage new strategies to stand ahead of their competitors, altering the competitive landscape consequently (Oliveira, T., & Martins, M.F.2010). Competitive pressure is defined here as the extent to which firms perceive themselves threatened by their counterparts within their industry or substitute sector. Lin (Lin, H.F.2006) suggests that competitive pressure (i.e., the pressure resulting from a threat of losing competitiveness) is a determinant of the implementation of IT strategies in organizations. IT adoption could brings about more effective SMEs both internally and externally, so SMEs consider IT as a essential tool with the purpose of compete for both the organizational adaptation and the environmental changes. Furthermore, IT heighten SMEs survival rate where they are functioning in a competitive environment with higher rate of failure risk (Levy, M., Powell, P., & Yetton, P.2001). As such, SMEs active in industries having high rate of innovation and intense competitive challenge are probable to perceive IT tools as a stronger driver for strategic change than those in other types of industries for example(Premkumar, G., & Roberts, M.1999) . Hence, it is hypothesized that SMEs undergoing greater competitive pressure use more sophisticated IT.

Prior IS research has found evidence showing that firm size is a significant determinant of IT adoption in SMEs example (Oliveira, T., & Martins, M.F. Oliveira, T.2010, Pan, M., & Jang, W.2008). Consequently, firm size was introduced as a control variable in our proposed research model.