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Some Managerial Implications of the Digital Divide
for US Small and Medium Enterprises
Lisa Murphy
University of Alabama Huntsville
Benjamin Powell & Delmonize Smith
University of Alabama, Tuscaloosa AL
Abstract
In some parts of the US, small and medium enterprises (excluding those in ITbased industries) not only face structural barriers such as low access to capital
and labor markets, but they are affected negatively by the impacts of a digital
divide in which some populations have low access to inter-networked
computing resources and weak computer literacy. Firms hiring from a
workforce mired in the digital divide are at a disadvantage in developing human
capital, since they start at a lower base of knowledge. Social capital also suffers
as the networks – both social and professional – of the owner and employees are
less likely to be populated with people who have useful, specific, actionable ITrelated knowledge. In particular, minority-owned enterprises may be more
affected than non-minority-owned SMEs.
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Some Managerial Implications of the Digital Divide
for US Small and Medium Enterprises
Introduction
Today's organizations – business, not-for-profit, education, and
government – seek to utilize information and communication technologies (ICTs)
for increased efficiency and effectiveness. Larger firms typically have decades of
experience with technology, have their own professional Information Systems
(IS) staff, and can hire consultants to provide more specialized skills when
needed to adopt a new technology (e.g., Alter, 1999; McNurlin and Sprague,
2002). However, small- and medium-sized enterprises (SMEs) invest less in
information systems and have a less strategic perspective on the potential value
of ICTs (Levy, Powell, and Yetton, 2001). Gaps in computer technology among
organizations have existed for decades (e.g., Delone, 1998; Raymond, 1985). As
the cost of easy-to-use desktop computing has dropped and its power
increased, small businesses have increasingly adopted information technologies
– upwards of three-quarters of all firms having at least some computing by
1998 (Bitler, 2002). However, IS practitioners and researchers are well aware
that having technology physically present in the organization does not mean
that users have been trained, the appropriate applications and configurations
installed, or the technology is in operating order – all practical barriers to use of
technology for business purposes (e.g., Alter, 1999; Levy and Powell, 2003).
While we don’t see small businesses as a direct victim of a divide between
digital haves and have-nots, we believe that the impacts of this particular
conception of the digital divide are under-investigated.
Thus, while today’s ICT is lower in cost and easier to use than it was a
decade ago, effectively exploiting technology for business needs is not
guaranteed. Small and disadvantaged businesses with less capital and fewer
choices in human resources (d'Amboise and Muldowney, 1988) are unlikely to
have an experienced internal IS/IT staff or the financial resources to hire
consultants and other technology experts (Cragg and Zinatelli, 1995). Thus,
SMEs may be less able to exploit ICTs effectively because they lack access to
informed and experienced sources of information technology knowledge (Cragg
and Zinatelli; Levy and Powell, 2000). Research has identified the importance
of personal networks in the success of small businesses and entrepreneurs
(e.g., Dubini and Aldrich, 1991; Ram, 1994); this suggests that SME owners
and entrepreneurs may be seeking ICT knowledge through various interaction
networks.
In this paper we address the potential for the digital divide to impact the
capabilities of small business to exploit ICTs. In particular, we look at the
extent to which personal and professional networks of SMEs provide
connections to needed ICT knowledge and whether the digital divide provides
some insight to this problem, particularly as it concerns minority or
disadvantaged SMEs.
We begin by reviewing which aspects of the digital divide are relevant for
small and medium business, provide for illustration and discussion two realworld examples of firms that sought knowledge about ICTs to solve business
problems, and review research related to the technology use of SMEs and
minority and disadvantaged firms and social network theory. We develop
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propositions that address the implications of the convergence of the digital
divide, small business computing, and social networks. Finally, we discuss the
contribution of the paper and consider future research needs.
Defining a Digital Divide
The extent and nature of the digital divide is one of the most-debated
topics in information and communication technology policy, practice, and
research. Initially focused on a differential access among certain socioeconomic groups in the United States (US) (e.g., Katz and Rice, 2002a and
200b; Klotz, 2004; NTIA, 2000; ), research on the digital divide now includes
both developing and developed countries from perspectives that address the
evolving roles of technologies that themselves are rapidly changing (e.g., Fink
and Kenney, 2003; Strover, 2003; Warschauer, 2003). Further, as the
technology and infrastructure of ICTs continues to advance, the standards by
which we judge these gaps may shift; for example, Pew Internet reported that as
of early 2004, the 55% of American adults who now have broadband access
either from home or work are disproportionately higher educated, better paid,
and do more activities online (Horrigan, 2004), a pattern that echoes initial
reports on the digital divide.
While US internet access is about 64% nationally, significant socioeconomic differences are visible in online participation rates based on race,
community type, age, household income, and educational achievement. Recent
internet demographics reported by the Pew Internet and American Life Project
(Pew Internet, 2004) report that Blacks go online at a rate of 43% compared to
67% for Whites. Community differences are also significant – for the first time,
more than half (56%) of rural populations go online compared to 62 and 68%
for urban and suburban populations, respectively. Age is also a factor with
only 25% of people 65 and over going online versus 78% for those aged 18-27
years. Those with household incomes less than $30,000 per year go online
(44%) at a rate half that of those with incomes of $75,000 a year (89%). Finally,
those completing college report going online (88%) more than double the rate of
those with less than a high school education (32%); completing high school
increases the online participation rate to 52%. (All statistics are from Pew
Internet May-June 2004 Tracking Survey.)
Apparently, if SMEs only hire young, well-educated people in non-rural
areas and pay them high salaries, they will have a workforce that has crossed
the digital divide to achieve high levels of online access. Not only does this not
reflect what we know about SME employment, it takes our attention away from
the question of what it is that an “online” workforce knows. The nature of
access and the types of skills have received considerable attention as
components of the digital divide (e.g., IMLS, 2004; NTIA, 2000). Recently, Van
Dijk and Hacker (2003) offer a “multifaceted concept of access” (2003, p. 315)
characterized by different barriers: mental access, material access, skills access,
usage access. Considerable overlap exists between van Dijk and Hacker (2003)
and the four common interpretations of the digital divide Fink and Kenney
(2003) identified in the literature, that is, the digital divide as a gap in access to
use, ability to use, actual use, and impact of use. Table 1 shows the
correspondence between three of the categories – those related to access to a
connected device, skill and ability to use it, and the extent of actual usage.
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Van Dijk and Hacker’s fourth item, “mental access” relates to lack of
motivation to use computers which has been identified as a reason for nonparticipation (Katz and Rice, 200a; Keil, Meader, and Kvasny, 2003; Kretchmer
and Carveth, 2001). Fink and Kenney’s category of “a gap in the impact of use”
begins to address what might be called “second-order” implications of the digital
divide – those that relate to consequences of first-order problems (e.g., people
not knowing how to use computers or not having access is a first-order problem
that results in lack of job opportunities – a second-order outcome).
Table 1. Two categorizations of the scope of the digital divide.
Fink and Kenney (2003)
 in access to use of ICTs
 in ability to use ICTs
 in actual use
[no comparable category]
 in the impact of use
Van Dijk and Hacker (2003)
 material access
associated with lack of possession of computers
and network connections
 skills access
associated with unfriendly user interfaces and
lack of education or social support
 usage access
associated with lack of usage opportunities
 mental access
associated with lack of interest or computer
anxiety that inhibits “elementary digital
experience”
[no comparable category]
The literature referred to by Fink and Kenney (2003) and van Dijk and
Hacker (2003) has primarily approached the digital divide as a socio-economic
phenomenon, e.g., concerned with civic participation, social isolation, and
economic disparities (Katz and Rice, 2000a, 2000b; Keil, Garret and Kvasny,
2003; Klotz, 2004; Kuttan and Peters, 2003). By bring into the discussion the
business context, we suggest that new issues arise when we look beyond the
individual level. Individuals bring their computing expectations and
experiences (or lack of them) into the workplace (estimates are that half of all
jobs involve computer use today (Karoly and Panis, 2004)). For an SME, each
ICT adopted must be made effective within that specific organizational setting
and deliver business value. Thus, we concern ourselves with both the first-order
aspects of the digital divide (people lacking access, skills, and use) and the
second-order aspects as they relate to small businesses (rather than individual
or social values).
Knowledge Requirements and Sources for ICTs in SMEs
Effective use of ICTs has been shown to have positive business impact
ranging from coordination (Argyres, 1999) to decision making (Leidner and
Elam, 1995) to organizational learning (Tippins and Sohi, 2003). However, the
role of IT for small business is more equivocal as Raymond (1985) notes that
research findings on IS in large firms may not generalize to small firms.
DeLone (1988) notes that computerization of small business may directly
support problem areas such as receivables collections, inventory control, and
improving service and sales. Yet, the failure rate for IT projects continues to be
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high, and small firms "are ill-equipped to absorb such expensive mistakes"
(DeLone, 1988, pp. 51-52).
The following vignette captures key elements of the challenges faced by
small businesses executives who are trying to effectively exploit IT for
competitive benefit and strategic gain. AEE is a real company, with a few
details disguised; Jack Andreessen is a white male in his 40s.
Vignette 1: Andreessen Emergency Equipment
Jack Andreessen is founder and owner of Andreessen Emergency Equipment
(AEE), a manufacturer of fire trucks, ambulances, and other emergency response
vehicles started about 20 years ago. The company, with just under 100 full-timeequivalent employees at their headquarters produces a range of customizable
emergency vehicles for various government agencies such as cities, counties, and
airports. Recently, Jack named Brian Roth to MIS Manager and gave him responsibility
for acquiring and implementing an integrated manufacturing management and
production activity control system with workstations located along the production line.
Brian, who started working in AEE's office as half time PC support seven years ago,
watched AEE's IT resources grow to a 18 machine local area network (LAN) running
administrative and management applications and another smaller LAN running a PCbased CAD software package to support the small team of equipment design
engineers. Jack chose Brian for the position over an outsider because of his familiarity
with the personnel and business operations and in spite of Brian's lack of experience
with traditional MIS skills of systems analysis, programming, databases, and software
testing. Jack recalls first hearing about the manufacturing information system through a
small business development organization a few years ago; it was some time and
several exposures to the concept before he took it seriously as having potential to
support expansion at AEE.
Even as a larger and well-established small business, AEE has limited
internal IS resources and lacks familiarity with projects of this scale and scope.
Neither Brian nor Jack have direct experience operating under production
systems of this complexity, much less developing, customizing, or implementing
such a system. Yet they expect a high degree of cooperation from users in their
roles as knowledgeable and trustworthy insiders. While AEE paid for some
consulting from the system vendor, both Brian and Jack relied upon contacts in
networks of practice – people met through an industry association and through
the local small business development forum – as key sources not just of
information but of knowledge. As IT becomes more capable, it also becomes
more complex and more specialized; becoming friendlier to users may also
require that applications become more customized, more integrated, or the
underlying technology more frequently upgraded (Alter, 1999).
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The second vignette illustrates a (also disguised) real-world case of a
minority-owned business which also relied upon networking to lead to an
effective ICT solution.
Vignette 2: MPI Shredders
Mike Phillips is owner of MPI Shredders, a certified MBE (Minority Business
Enterprise). His twelve-year old firm, located in major city in the southeastern US,
offers document shredding both on- and off-site. Typical customers include local and
state government agencies as well as local public and private firms. While the market
for reliable and confidential destruction of documents continues to grow, Mike knows his
company's success depends on keeping costs under control. He's particularly
concerned about increasing indirect costs as over half of MPI Shredders’ staff of fortyeight handles administrative and support functions such as billing, order processing,
payroll, and customer relations.
Within MPI, IT is limited to three stand-alone computers which are used primarily
for printing checks and invoices. The computers run off-the-shelf Microsoft operating
systems along with a popular accounting software package. MPI's web-presence is
non-existent, and no attempt has been made to network the computers. Mike receives
frequent direct marketing promotions from local IT companies, in fact, MPI's office is
located next door to a firm who provides a wide spectrum of computer and networking
services to large organizations. Offers aimed at MPI Shredders have included Internet
Service Provisioning (ISP), wireless networking, and ERP solutions. Typically, Mike
treats the solicitations as junk mail and turns away calls and visitors. Mike lacks access
to a trusted and experienced IS professional; he is left to his own devices to filter the
material about ICTs relevant for MPI from the noise.
Not until he discussed his businesses woes with his brother-in-law, a lawyer, did
Mike realize the potential value of an IT upgrade. Facing similar issues to MPI, the law
firm had relied on a client-server based integrated accounting and customer relationship
management software package. MPI Shredders is now implementing a similar IT
solution.
Mike has little experience with IT beyond personal productivity tools
such as word processing, has no internal advocate for IT, and sees information
about IT as a distraction rather than an opportunity. In effect, Mike is playing
the roles played by both Jack and Brian at AEE but without their networks of
practice; instead of relying on a trusted insider or input from peers who are
fellow practitioners in similar domains, he seeks guidance from someone within
his social network, his brother-in-law. His brother-in-law can provide input
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only for business functions that overlap between professional law offices and
document shredding, and to the extent that he has had recent experience with
current technology options.
How firms like AEE (Vignette 1) gain capability in IT is itself an
interesting question, however, we believe that the issue is especially relevant for
minority businesses. Ninety-nine percent of minority firms are small
businesses (SBA 2001), and they are growing faster than the population in
terms of both numbers of new firms and revenues (Buckley, 2002). Minorities
now own nearly fifty percent of American businesses, with Asian
American/Pacific Islanders, Native Americans, Latino, and African-American
businesses growing six times the growth rate of U.S. businesses as a whole
(Yago and Pankratz, 2000). At AEE, Brian and Jack are challenged to master a
system whose potential impact (both positive and negative) on their small
business far exceeds any prior technology; while the key position is filled with
an insider (Brian), networks of contacts serve as important knowledge resources
who help to reduce the risks of adopting this new technology. There is reason
to believe that the path to effective use of technology for minority-owned
businesses is an even steeper climb than for small business in general.
Small business managers must make choices about where to spend their
limited time – becoming the expert on how companies in your industry are
exploiting ICTs competes with other critical activities such as managing
employees, finding customers, and delivering products and services (e.g.,
d’Amboise and Muldowney, 1988; Stans, 1946). Clearly, small businesses do
bring ICTs in to their organizations, so where are they learning about it?
Next we review some recent studies about small and disadvantaged
enterprises and their use of information technologies.
SMEs and ICTs
Small and medium enterprises (SMEs) who are not in information
technology-related industries can experience barriers to fully exploiting the ICTs
due to several structural problems. SMEs as defined by different agencies and
researchers represent the full gamut from solo operators to corporations with
several hundred employees participating in global markets from multiple
locations (SBA, 2003). (It is not surprising that researchers such as Levy and
Powell, 2000 have warned against treating SMEs as homogenous.) Because
variations in number of employees, number of locations, and diversity of
markets directly impact the structural barriers and IS/IT choices firms can
make (Levy, Powell, and Yetton 2002), we are focusing our attention on smaller
firms – those less than 100 employees. We provide two real-life cases taken
from personal experiences of two of the authors and which were instrumental in
triggering our interest in this topic.
Structural problems besetting SMEs (compared to larger corporate
entities) include less access to capital, less selectivity in regard to hiring (both
in terms of geographic coverage and ability to compete for talent), and narrower
market coverage (d’Amboise and Muldowney, 1998; Ireland, Hitt, and Sirmon,
2003). SMEs with an entrepreneurial bent may overcome these problems by
creativeness and early opportunity recognition and by making effective use of
social capital (Dubini and Aldrich, 1991; Putnam, 2000). Factors such as more
flexibility in personnel role assignments (e.g., due to a flatter hierarchy) seem to
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be an advantage when quick responses (e.g., to a market opportunity or the
demands of a large customer) are needed. Yet, a lack of specialization in job
assignments will inhibit the development of specialized knowledge (Stans, 1946)
such as that needed about ICTs.
Prior literature on computing and SMEs have identified that they make
less strategic use of IT (e.g., Palvia, Means and Jackson, 1994), are often driven
by the demands of a few large customers (e.g., Levy and Powell, 2000), and are
slow to adopt technologies in general (Delone, 1988). Two recent empirical
studies provide insights into the context of small business computing. Does PC
Use Pay? Computers and Small Firm Performance is a analysis of a survey
conducted by the Federal Reserve Bank of San Francisco using a sample
designed to represent the 5.3 million US small firms in business as of
December, 1998 (Bitler, 2002). Can Expanding the Use of Computers Improve
the Performance of Small Minority- and Women-Owned Enterprises? reports on a
stratified survey and selected interviews of SMEs and minority and womenowned enterprises (MWEs) conducted by the Urban Institute (UI) in Chicago,
Los Angeles, Miami, New York, Seattle, and Washington, D.C. (Lerman et al.,
2004). Results of interest from these studies include:
 In 1998, 76% of small firms used computers for at least one business
purpose (Bitler, Table 1.)
 Firms using computers for any business purpose are larger, younger, have
younger primary owners, and other differences (Bitler, p. 8).
 Firms with younger, more educated owners who have greater personal
experience and comfort with computers and other digital technologies have
higher computer use (Lerman et al.);
 Gains from computer use are more likely when a firm is of a scale to benefit
from labor savings (i.e., staffing costs are above the minimum to keep
business open) (Lerman et al.);
 While accounting functions are the most commonly used technology (Bitler);
many owners are not utilizing available functions (Lerman et al.).
 The major barrier to computer use was “having the skills to use computers a
great deal in the business” (Lerman et al., p. 3);
 In personal interviews, owners report a tension between “an emphasis on
technology to control processes and attention to service that improves the
customer relationship” (Lerman et al.);
Minority Business and ICTs
The SBA (2001) defines a minority business using four race and ethnic
criteria. Minorities are groups who have been subjected to racial or ethnic
prejudice or cultural bias because of their identity as members of a group,
otherwise known as a small disadvantaged business concern. Included in this
group are firms owned by blacks, Hispanics, Native Americans, and Asians. It
is important to note that in a rapidly globalizing world, these few groups do not
cover the gamut of possible minority definitions; here we focus on this common
group and leave broader applications for future research.
In general, small firm owners are more educated than the adult
population (Lerman, et al., 2004), and minority owners are no exception. While
both white male and black male SME owners are more than twice as likely to
graduate from college than their counterparts in the population as a whole, this
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succeeds in reproducing a disparity (60% college graduation rate for white male
business owners versus 44% for African American business owners) (Lerman et
al., p. 7). Socio-economic differences such as education, gender, race/ethnicity,
and income may confer greater access to information concerning financing and
management, as well as personal connections that could increase access to
various types of capital (Buckley, 2002; Ram, 1994) . This is consistent with
empirical evidence that minorities are more often denied credit and pay higher
rates for credit than do white business owners (Cavalluzo, Cavalluzo and
Wolken, 1999).
Minority small businesses are more extreme cases of small business in
general – they are smaller, more remote, and have lower capitalization. Yet, the
Urban Institute (Lerman et al., 2004) found that minority firms had similar
levels of an index of computer intensity1 to non-minority firms. Indeed, the
firms of African-American males reported the highest index (55.0) compared to
45.7 for white males. In general, Lerman et al. found that computer use by
minority and women-owned enterprises (MWEs) is similar to non-MWEs in
which use is dominated by accounting and administrative functions:
 “Over 40% of MWEs reported minimal or no reliance on computer
technologies for their core work activities” (p. 10);
 For small MWEs, using computers for more business functions or using
them more intensively raises their productivity and profitability.
Because of the positive association the Urban Institute study (Lerman et
al., 2004) found between intensity of computer use and firm productivity, the
authors believe that small businesses, and MWEs in particular, should increase
the amount of computerization they attempt. They note:
Given the substantial role of owners’ computer skills, experience, and
comfort in determining computer use by small firms, it is not surprising
that the technology resources available in owners’ social networks are
important in determining the extent and effectiveness of computer use
(Lerman et al., p. 14).
Because businesses and the individuals who run them exist within and arise
from the same context that produced the Digital Divide in the US, minority
businesses, their employees, and their owners may have less access to ICTs,
less skill, and feel less empowered to exploit these technologies If human
resources – either as direct employees or via social networks -- available to
minority-owned firms are negatively affected by the digital divide, the
businesses themselves may be as well.
Interaction Networks as ICT Knowledge Sources
While we lack empirical information on the information and knowledge
sources for IT for small and disadvantaged business, evidence from cases such
as AEE and MPI Shredders point us in a useful direction. Jack's experience at
AEE utilized practice-oriented networks while Mike at MPI Shredders relied on
social networks. Both of these entrepreneurs utilized a form of social capital
developed through reciprocal participation in social institutions (Putnam, 2000;
Ye and Agarwal, 2003). Because entrepreneurial businesses are characterized
by knowledge and power focused in an individual, social network theory is a
useful approach to addressing issues about how ICT knowledge relevant to the
particular domain of the firm is acquired.
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By their nature, small businesses blend networks of individuals and
networks of organizations. Dubini and Aldrich (1991) distinguish between the
personal networks of individuals such as the SME owner and the “extended”
network of relationship that exist because of the interactions between the SME
and its suppliers and customers over time. However, due to the dominance of
SMEs by the existing personnel, particularly the executive, and the early state
of research in this area, we focus our discussion on networks of individuals
interacting (i.e., SME owner/managers and employees).
We want to draw attention two types of individual interaction networks:
social and practice- or profession-oriented (e.g., Szarka, 1990). Social networks
are informal relationships or linkages characterized by direct and face-to-face
contacts (Borgatti and Foster, 2003; Reagans and McEvily, 2003 ). Members of
this type of network include friends, family, and close business associates,
among others. Research indicates that social networks are significant for the
start-up and success of entrepreneurs (e.g., Baron and Markman, 2003; Ram,
1994).
Practice-oriented networks are characterized by linkages made through
normal day-to-day interactions of business with suppliers and customers,
through professional associations, and by participation in groups such as the
small business forum used by AEE. (We prefer the term practice-oriented
because it avoids the connotation that the network is only about “professions”
such as accounting, medicine, or law.) This can include relationships that were
made as a part of formal firm-to-firm interactions as well as contacts made at
business functions of various sorts. An example of a practice network we
encountered in preliminary interviews is the document management discussion
group operating via LawNet, a symposium and supporting electronic resources
of the Association of Legal Administrators.
Within large organizations such as corporations, practice-oriented
networks have been studied within a formal structure such as a department
(e.g., Wenger, 1998) and across business units (Constant, Sproull, and Keisler,
1996) to serve instrumental purposes such as solving technical problems (as
illustrated by Constant et al.) A community of practice (CoP) is a form of
practice network which emerges from interactions directed at accomplishing
tasks within a domain; Wenger and Snyder (2000) define it as "groups of
people informally bound together by shared expertise and passion for a joint
enterprise" (p. 139). ICTs allow networks that would be inhibited by distance
and communication barriers to exist such as the online e-zines allowing people
to connect to others over the internet with similar interests (Brown and Duguid,
2000; Wasko and Faraj, 2000). For our purposes, when people engage in CoP
networks for personal interests – for example, around a hobby or sport –we
define these connections as part of a social network.
Social Network Theory
Social networks are regarded as particularly important tools for small
and new business since they facilitate the coordination of information exchange
in turbulent environments (Borch and Huse, 1993) and lower the barriers to
information sharing (Zahra and George, 2002). In his seminal book, Bowling
Alone, Putnam (2000) identifies social capital developed through social
networks based on community, minority, and ethnic subgroup linkages as
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sources of trust and support important for small businesses. Ram (1994)
documents the critical role of friends and family connections combined with
restrictions on access to other career channels to the entrepreneurial choices of
ethnic minorities in the United Kingdom. Such networks provide capital, labor,
information and channels for resolving conflict and are relatively inexpensive to
maintain through normal interactions in one's neighborhood and by attending
church, and school and sporting activities (Putnam). These "informal" networks
are especially useful if they are connected with many personal relations of trust
and affiliation between the network members (Perrow, 1986). Access made
possible via social networks is important because it allows individuals to draw
on work-related advice as well as emotional support (Ibarra, 1993).
Interaction networks, whether primarily social or primarily practiceoriented, are characterized by several structural features: homophily, range, tie
strength, and tie density (Borgatti and Foster, 2003; Granovetter, 1973; Ibarra,
1993; Mehra, Kilduff, and Brass, 1998; Reagans and McEvily, 2003).
Homophily refers to similarity between the focal actor and the individuals in the
network encompassing attributes such as gender, age, race, educational
background, motivation, and experience (Mehra et al.). Range relates to the
diversity represented by differences among the other members in focal actor's
network (Reagans and McEvily). If interactions are restricted to only like
people, information flow is restricted from more distant sources (Granovetter;
being able to draw on a broad set of network relationships increases the
chances that someone in the network will have useful resources (Constant et al.
1996). Tie strength describes the nature of the relationship between a focal
actor and any other member of his or her network; stronger ties represent a
greater investment in time, emotional intensity, intimacy, and reciprocality
(Granovetter). Weaker ties are more distant, less stable, and less binding
(Constant et al.), but may be more useful for information gathering
(Granovetter). Density relates to how intensely connected members of one’s
network are to each other and is measured by comparing the total number of
possible ties to the extant ties (Ibarra). Because network connections take time
and effort to develop and maintain, multiple measures of network structure are
important (Borgatti and Foster).
Both social and practice-oriented networks are a way for an individual to
extend his or her resources (Reagans and McEvily, 2003). In the case of small
and minority business owners, these networks are significant sources of capital
and expertise (e.g., Baron and Markman, 2003; Putnam, 2000). Based on cases
like MPI Shredders, we believe that social networks play a particularly
important role for minority-owned firms when dealing with the specialized
knowledge needed to exploit ICTs.
Research in large organization settings have shown that networks do not
form randomly nor solely around instrumental needs (e.g., Ibarra, 1993). To
learn more about the role of homophilia in interaction networks, Mehra and
colleagues (1998) tested distinctiveness theory as a basis for the formation of
social identity and social networks by identifying the significance of visible
categories such as race and sex. They conclude that members of underrepresented groups (e.g., minorities and women in business settings) are
marginalized in friendship networks can result from “exclusionary pressures”
(the choices of others) as well as from the preferences of the minorities
themselves for same-race friends (p. 447). Research such as this gives us
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reason to be concerned about the ability of social networks to provide
instrumental connections for the needs of small and disadvantaged businesses.
SMEs, Interaction Networks, and the Digital Divide
As a starting point, we know that the knowledge available to SMEs,
particularly to minority SMEs will be affected by the knowledge available in the
pool of current employees and potential employees (d’Amboise and Muldowney,
1998; Stans, 1946). Indications are that access and skills among
disadvantaged populations in the US have improved among minorities has
about doubled (Pew Internet, 2004), and 98% of all public libraries in the US
have computers providing free internet access (IMLS, 2004). Yet, because
minority populations are not evenly distributed around the US, and minority
businesses are more likely to be serving minority communities (Ram, 1994;
Ward, 1991), the disparities in individual knowledge based on online access
and experience are more likely to occur in the environments in which minority
businesses operate. For example, one group still experiencing lower levels of
accessibility are rural populations (Pew Internet, 2004), thus SMEs operating in
non-urban or suburban areas are also hiring from a labor pool with less
computing experiences.
The important of familial and community resources such as those
accessed via social networks to the start-up, development, and competitive
advantage of ethnic firms has been established (Baron and Markman, 2003;
Putnam, 2000; Ram, 1994; Ward, 1991). Initial indications are that the social
networks of minority small business owners are probably highly homophilic in
terms of race and ethnic demographics but low in terms of the diversity or
range of the members (Ibarra, 1993; Mehra et al., 1998; Putnam, 2000).
Ibarra's (1993) findings about the networks of minorities and women in
corporate environments may indicate that for minorities, tie strength is more
likely to be strong (p. 72) and tie density high (i.e., their networks are
characterized by strong linkages). Among second-year MBAs, Mehra et al.
(1998) found that minorities were more closely linked to each other than to the
non-minority students, and that their connections to the network as a whole
are mediated through a few boundary-spanning individuals. While the
environment of small business and the characteristics of their owners differ
from corporate or pre-corporate academic settings, these suggest that the
interaction networks of minority small business owners produce more
redundant information and do not significantly expand access to diverse or
remote knowledge resources, that is, they are weak in weak ties.
Research associated with social capital development suggests that
minority firms are less likely to draw upon practice-oriented networks. This
may be because fewer groups exist in key locations such as the inner city
(Putnam, 2000), because minority business owners are more comfortable
interacting with similar others (Mehra et al., 1998), or that the primacy
attached to the family may get in the way of economic rationality by excluding
outside assistance and support (Ram, 1994). Particularly in times of
uncertainty or turbulence (something which characterizes small business life),
individuals are more likely to seek out people with similar personal attributes
(e.g., Ibarra, 1993). This leads to our first proposition:
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P1: Social networks are more important resources for general ICT
knowledge among minority-owned firms than for other small
businesses.
Ibarra (1993) notes that "the nature and scope of opportunities available
through a personal network are dependent upon the types of people one
interacts with" (p. 60). And, we also know that, as a whole, non-Asian
minorities as individuals are less likely to have high levels of skill and access to
information technology (NTIA, 2000). Because minority businesses like other
small businesses are more likely to hire locally, employ family members, and
pay less(d'Amboise and Muldowney, 1988), they are less likely to have
substantive internal IT capability. Yet, if they look to their social network for
information and knowledge about IT, they are likely to be drawing from the
ranks of people experiencing the Digital Divide. Thus, the makeup of social
networks of minorities consists of informal family and friends less likely to
possess knowledge of ICTs in general. This leads to our proposition:
P2a: Social networks of (non-Asian) minority firms will be made up of
fewer individuals who possess general ICT knowledge.
Knowledge about ICTs that is widespread in the population is that
related to individual skills and experiences with common desktop computing.
This type of knowledge is unlikely to include the specific and particularistic
knowledge about technology applications, their value, and their problems
relevant for a particular industry. For example, being a consumer at a retail
setting that uses point of sale systems does little to teach one about the issues
associated with acquiring, modifying, configuring, and installing such a system
to run a retail business. Yet, one’s social network may include people who are
currently familiar with the firm because this is the same pool from which a
firm draws its employees. One implication of this is that social networks will
have redundant information about the existing use of technologies in the firm,
but little knowledge about how the competition is using ICT. When a firm is
interested in new technologies or information about ICTs that is not within their
current experience, it is unlikely that their existing social network contains the
industry-specific insight and experience desired.
P2b: Social networks of minority firms will be made up of fewer
individuals who possess ICT knowledge specific to their industry.
Assessing the suitability of technologies for a particular setting requires
knowledge of the firm’s ICT experience and needs, but also the ability to
understand the technology itself as an actor that brings requirements along
with new capabilities. Because SMEs lack internal IT specialists, the ability to
understand the capabilities, impacts, and issues of new technologies will be
lower than at firms with such specialists. Assessing the cost, timing, and effort
to bring a new ICT into a particular organization requires access to experienced
ICT personnel who also have depth knowledge of the local environment. The
social network of a minority small business owner is less likely to include
people with the combined general, industry-specific, and local knowledge within
their social network.
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P2c: Social networks of minority firms will be made up of fewer
individuals who can map industry-specific knowledge to knowledge
of the local ICT setting.
Evidence that minority firms rely on social networks for business
operation and development is strong. Lerman et al. (2004) note that while
“social networks can be a source of low-cost technology support”, that can
cause firms “to become dependent on the availability of largely unpaid and not
always available family and friends” (p. 14). As ICTs become more embedded in
business operations and firms depend on technologies to deliver core business
services, this dependence needs to be broken. One way to break it would be to
bring practice-oriented networks into the mix. However, distinctiveness
theories and other research related to identify formation (e.g., Mehra et al.,
1998) suggest that minorities may be marginalized within networks in which
their status is visible and distinctive. Minority business owners may be less
motivated to participate in practice oriented networks, and if they do
participate, they may be more remote from the central nodes of the network.
P3a: Minority business owners will be less likely to participate in
practice-oriented networks.
P3b: Minority business owners who participate in practice-oriented
networks will be more peripheral in their participation.
An empirical study at large organizations indicated that "managerial IT
knowledge is crucial for bringing about high levels of IT use" (Boynton, Zmud,
and Jacobs, p. 314). Yet, Levy, Powell and Yetton (2002) report that small firm
owners tend to look for "the minimum necessary to improve efficiency and
effectiveness, but are unlikely to see the value of IS as a means of growing" (p.
352). Access to peers who have more ambitious goals for ICT, for example
through interaction networks, could help overcome such resistance. However,
managers in minority owned firms are less likely to have significant ICT
experience, are less likely to have skilled IT staffers or organizational
knowledge, and are less likely to find these resources in their social networks,
or to participate in practice-oriented networks. This pattern may also reduce
their firm’s absorptive capacity (Cohen and Levinthal, 1990; Zahra and George,
2002). Our conclusion is that:
P4a:
Minority firms will have less capacity for acquiring industryspecific knowledge mapped to the local ICT setting.
P4b: Minority firms will have less capacity for exploiting the ICT
knowledge they have acquired.
Discussion and Contribution
Small business drives economic growth and minority-owned businesses
make up nearly half of small businesses. Information technologies at larger
firms contribute to increased productivity and competitive advantage, and
minority businesses, to continue their growth, need to learn to exploit ICTs.
The amount, nature, and complexity of IT knowledge is growing, yet to be
effective, it must be appropriately selected, configured, and installed in a
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specific firm context. Weaknesses in general and industry-specific ICT
knowledge are likely to negatively impact the ability of a firm to internalize
innovations. Smaller business owners such as Mike at MPI may lack the
internal ICT resources, practice network contacts, or ICT talent within their
social networks to help filter and select technologies. Thus compared to other
businesses, both very small and minority business owners may be less
connected to people that could bridge the gap between their internal IT
situation and IT applications in general and in their industry.
As yet, we have refrained from offering propositions that make distinctive
statements about metrics of SME and minority business social and practice
networks. Results from preliminary interviews currently underway in
preparation for a cross-sectional survey of minority businesses and IT
knowledge sources have given us pause. These interviews suggest that factors
such as a history of acting on a belief in the value of technology (vs. professing
such a belief) and the growth strategy of the business likely operate as
moderators about how and when owners use social vs. professional networks
for ICT knowledge.
We are concerned that the situation facing SME and minority firms is
even more dismal than we suggest. Personal computer literacy and use of the
internet do not confer skills or understanding about the inter-relationships
between the affordances and demands of (increasingly complex) ICTs and the
business processes and practices that produce value. Programs such as
Community Technology Centers (CTCNet, 2004) and public library training
programs (IMLS, 2004) focus on providing personal skills (e.g., email, word
internet) which are useful but not sufficient for exploiting increasingly
sophisticated and specialized technologies in SMEs. If we are to learn from the
poor success rate of IT implementations at large firms (and avoid costly trialand-error learning as advised by Delone, 1988), attention to issues such as
requirements, business processes, conversion strategies, and acceptance by
users are needed. However, these skills are harder to define and harder to
demonstrate than technical skills such as a A++ certification or configuring a
network. SME owners who bite the bullet and hire an IT specialist – someone
who can support their existing technology base – are unlikely to find the general
business knowledge, business process analysis, modeling, and problem solving
orientation needed for choosing and implementing technologies that may
radically change business operations (Karoly and Panis, 2004).
This paper suggests several directions that may contribute to the low ICT
adoption rate among minority businesses. Knowledge and experience gaps
appear to interact with a higher reliance on less well-informed social networks.
If these propositions are true, there are theoretical and practical issues to
address. Theoretically, we are challenged to validate the particulars of building
and exploiting networks which contain the needed knowledge, to clarify the
application of concepts such as absorptive capacity to smaller firms, and to
understand whether “softer” technical knowledge is important for SMEs to
exploit ICTs. Practically, as a society, we are challenged to overcome the impact
of the digital divide as it affects a significant portion of our economy – small
enterprises in general and minority-owned businesses in particular.
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1
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