THE USE OF INFORMATION TECHNOLOGY IN SMALL
BUSINESSES: A STUDY OF NIGERIAN FIRMS
BY
DR. (MRS.) S. L. ADEYEMI
DEPARTMENT OF BUSINESS ADMINISTRATION
UNIVERSITY OF ILORIN
ABSTRACT
This paper presents and develops the concept of a multi-dimensional computerization profile.
The computerization profile of small Nigeria firms is obtained by analyzing data provided by
198 firms. The profile can serve as a benchmark for managers of small firms, and also for
policy makers and academics interested in cross-cultural and temporal comparisons.
Differences in the computing profiles of high and low performing firms are also examined.
This exploratory comparison suggests critical dimensions of computing that are associated
with firm performance.
INTRODUCTION
With the decreasing costs of hardware, the wide availability of packaged software, and the
increasing comport literacy of employees, many small organizations have found it feasible to
computerise their business operations, in some cases quite extensively. However, it is clear
that not all organizations benefit equally from computerization. Among reasons offered for
the uneven impacts of computerization, the lack of management experience with and
commitment to computing, and the need for a certain level of scale before benefits are
evident, appear most relevant to small business computing.
There have been few systematic studies of small business computing, particularly in the
developed economic context such studies are needed because many of the prescriptions of
obtaining benefits from computing are based on studies of large organizations. Such
organizations typically have platforms built around mainframes, a distinct and specialized
department, and management practices that reflect the need for formal coordinating and
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control mechanisms, such as charge back and steering committers. The typical small business
has none of these. What then is “best practice” in the context of small business computing?
The purpose of this paper therefore is to present a conceptual framework for describing the
computerization profile of small business organization. The notice-worthy feature of this
framework is that it attempts to paint a reasonably complete picture by capturing both the
applications portfolio and the underlying infrastructure (technology platforms, and
management practices). Using this framework to guide our data collection, we were able to
describe the typical computing profile of small business in Nigeria. In addition, we implore
the differences in computing profiles of high and low performing firms in order to draw
inferences about the areas of computing that management should focus on.
LITERATURE REVIEW
Previous Studies of Small Business Computing
A major theme in previous studies has been the identification of the factors leading to
successful computerization. The key finding was that the chief executive’s knowledge,
involvement and support in computerization was a critical success factor. (Raman and Phoon,
1990, Soh et al., 1990, Delone, 1988). Barriers to greater IT use, such as the lack of capital
investment funds, were also identified. (Yap, 1989. Soh et al., 1990, Garsombke and
Garsombke, 1989).
In assessing the success or failure of computerization, most studies focused on operational
measures of IT use, such as frequency of use, degree of user satisfaction, and extent to which
user requirements were met (Soh et al., 1990, Delone, 1988). Less often, the measure of
success was overall organizational performance, such as increase in production and increase
in profit margin (Garsombke and Garsombke 1989).
There were also differences in the scope of computing examined. A number of studies
focused on specific types of computerization, such as decision support systems (Raman and
Phoon, 1990), and the use of robotics and other forms of manufacturing automation
(Garsombke and Garsombke 1989). Other studies have considered the organization’s
computerization as a whole. We further the latter stream of work by explicitly recognizing
that an organization’s computerization is not a monolithic phenomenon, but that it has many
dimensions. In the next section, we develop the concept of a multi-dimensional profile of
organization computing.
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DIMENSIONS OF THE COMPUTERIZATION PROFILE
The different dimensions of computerization are suggested by a larger body of work
(including the many studies of large firms) that looks at organizational computing as a whole.
A major issue among these researchers is how to accurately reflect an organization’s overall
computerization level. Some studies look primarily at the dollar amount of IT investment
(Strassmann, 1990, Haris and Katz, 1991), on the assumption that greater IT expenditure is
related to greater amounts of computing. Others focus on the applications portfolio (Cron and
Sobol, 1983, Markus and Soh, 1993), and the argument is that it is the application software
that most directly delivers organizational benefit. Finally, there is a group that believes that
the underlying IT infrastructure (hardware and systems software, human skills, management
practices) is critical to longer-term performance indicators such as organizational
adaptability, flexibility, and speed of response (Weill, 1992).
IT expenditure is usually defined as the total amount spent by the organization in a year. The
main
expenditure
items
are
hardware,
software,
personnel,
and
increasingly,
telecommunication costs. There is considerable variation in the measure of IT expenditure
used in various studies. Most studies attempt to control for the differing firm size by looking
at IT expenditure as a proportion of total operating expenditure (Haris and Katz, 1991), or of
sales (Weill, 1992).
The applications portfolio refers to the set of software programs that directly support business
activities. It excludes systems software such as operating systems and networking
management software. In the measurement of the applications portfolio, studies have largely
taken a functional approach. For example, Cron and Sobol (1983) identify the major
functions, such as accounting, and the major tasks within each function, such as billing. We
chose Porter’s (1985) set of distinct, yet reasonably generic, set of value activities as the basis
for the measurement of the applications portfolio. Porter identified two categories of business
activities: primary (inbound logistics, operations, outbound logistics, marketing and sales,
services) and support (firm infrastructure, human resources management, technology
development, procurement). This list of activities was adapted slightly so as to reflect
common terminology in the service sector, and in the local context.
IT infrastructure has been defined as the enabling foundation for other business systems
(McKay and Brockway, 1989). The distinguishing characteristics of IT infrastructure is that it
3
is shared throughout the organization, and investment in it is based on long-term
considerations (Weill, 1992). These are characteristics that it shares with other types of
infrastructure such as roads, telephone lines and schools. Its primary components are the
hardware platforms, systems software, networks, and the set of human skill necessary for the
utilization of the other IT resources. Recently, research attention has been shifting towards IT
infrastructure for a number of reasons – the rise of end-user computing, and the ready
availability of packaged software and fourth generation programming languages have led to
the proliferation of applications and also of technologies. At the same time, the call for faster,
more effective decision making, customer service, and product innovation demand closer
integration of the multiple technology platforms, and departmental applications. One
response to these pressures is building an IT infrastructure that provides a level of
commonality necessary for integration of IT resources, while allowing a forward path for
incorporating new technologies when needed.
Apart from the physical infrastructure, there is also the “soft” infrastructure comprising
human skills and management practices relating to computing. There is increasing consensus
in the field that how much a firm spends on computing is not a good indicator of the potential
benefits. Organizations do differ significantly in the benefits that they receive from
computing even when they spend approximately the same amounts (Markus and Soh, 1993).
Management practices and organizational climate contribute to “conversion effectiveness”,
which Weill (1988) defines as the firm’s ability to convert IT spending into firm benefits. We
synthesize these various points of view, so that the organization’s computing profile
comprises IT expenditures, the applications portfolio and the IT infrastructure. These are
operationalized in the next section.
METHODOLOGY
Data Source
The data used in this study is from a 2003 national survey of IT use in Nigeria. This survey is
conducted biannually by the Computer Association of Nigeria. The purpose of the paper was
to assess the extent and sophistication of computer use in Nigeria firms. The results of the
survey were to be used as inputs to government-led formulation of national IT policies. The
sample was drawn from the population of organizations with more than 10 employees.
Stratified random sampling was used to ensure that there were adequate numbers of
organizations in each industry sector and size group.
4
Organization with less than 50 employees account for 82% of the population of firms.
3,816questionnaires were sent to the managing directors of small firms, and 21% responded.
The CEO questionnaires provided information on business performance indicators and
company background. If the firm was computerized, a second questionnaires, requesting data
on IT use, was then sent to the person in charge of computing in the firm. The response rate
at this second stage was 50%, resulting in 313 organizations for which we have data from
both the managing director and the person in charge of computing. For the purpose of this
paper, we examine the subset of firms in the sample that conform to the commonly accepted
definition of small business in the Nigeria context. These norms are divided from the
guidelines used by various government assistantship schemes targeted at small, local
enterprises. We select the firms that have 50 employees and have at least 30% local
ownership. We were unable to include a third guideline – that the firms should have less than
N200m in productive assets- since this data was not captured in our dataset. The resulting
sample used in our analysis comprised 198 firms.
Measures
An organization’s annual IT expenditure was measured in three ways: 1) in dollar (S$m)
terms, 2) as a percentage of total operating expenses, and 3) as a percentage of revenue.
Using Porter’s value activities as the basic framework, the applications portfolio was
measured by 1) the average number of activities computerized, 2) the number of firms which
have computerized each activity, 3) the number of years each activity was computerized, 4)
the extent computerized systems were used in each activity for transaction processing,
management control, and decision supports. A rating scale of “1” (low level) to “7” (high
level) was utilized here.
The hardware component of infrastructure was measured by a number of ratios. The first two,
1) of number of PCs/workstation per employee, 2) number of PC/workstation/terminals per
employee, measure the access that employees have to computing resources. The next two, 3)
number of PCs linked to LANs per employee, and 4) number of PCs linked to
LANs/terminals linked to mainframes/mainframes per employee, measure the extent of
networking within the organization. The extent of networking with external parties is
measured by 1) number of business partners (e.g. suppliers) that are electronically linked to
the firm, and 2) the extent of use of the linkages (via electronic mail, EDI, etc.). the latter was
assessed on a 7-point scale.
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We had no direct measures of IT skills, although some of the management practices
measured encourage the development of IT skills. Measures of management practice include
1) the number of firms with policies or guidelines on a range of IT activities (such as vendor
selection), 2) the extent of managing director/general manager participation in IT activities
and 3) integration of IT and business planning (both measured on a 7-point scale).
Analytical Approach
For each of these measures, we computed and tabulated descriptive statistics for the sample
as a whole. These provided the material for our discussion of the computerization profile of
small businesses in Nigeria. We also explored whether high and low performing firms differ
in their computerization profiles. This comparative approach has been advocated by a number
of researchers who believe that techniques that rely on central tendencies or averages, do not
help us to understand why a top performing firm may differ from a low performing one, and
may therefore obscure important lessons (Thachenkary, 1991, Lewin and Minton, 1986,
Buzell and Chussil, 1986).
Following Haris and Katz (1991), the firms were ranked in ascending order using the
measure of performance. The high and low performers were defined as those above the 75th
percentile and below the 25th percentile respectively. The measure of performance was a item
question that required managing directors to rate their firm’s performance relative to
competitors on a 7-point scale. The 9 items were market share, return on investment,
profitability, market/product development, product/service quality, customer relationship,
ability to compete internationally, productivity and quality of decisions. The performance
construct and its corresponding items were subjected to Cronbach’s alpha reliability testing to
assess its internal consistency (Nunnally, 1978). The alpha reliability of the performance
measure was 0.93. the various measures making up the computerization profile were
computed for both the top and bottom quartile.
ASSESSING THE COMPUTERIZATION PROFILE OF SMALL BUSINESSES
Description of Sample Firms
Our sample consists of 198 firms that employed less than 50 workers and have a local
ownership of greater than 30%. The average number of employees was 22.6. most of the
firms (about 80%) had less than $5m in total assets, and about half the firms had less than
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S$5m annual revenue. The firms were mainly from the wholesale (26), real estate (26),
printing (20) and retail (19) industries.
IT Expenditure
We found that the firms on the average spent about 1.6% of operating expenditure and 1.8%
of sales. The breakdown of the IT expenditure is shown in table 1 below. Hardware costs
account for about half the annual expenditure. The 20% spent on purchased software, and
15% on personnel reflect the relatively small in-house software development capacity.
Table 1:
Components of 2002 IT Expenditure
N=129
1991 IT Expenditure (%)
Mean
Standard Deviation
Computer Hardware
49.87
35.37
Computer software
19.58
25.71
Personnel
14.59
26.65
Telecommunications
3.41
12.44
Consultancy
3.26
11.99
Other Expenses
9.29
22.95
IT Applications
On the average, small firms had computerized 3.57 activities (out of a possible of 10
activities). As expected, almost all the firms had computerized their finance and accounting
function, and about half the firms had also computerized their general administration and
operations (see table 2). On the average, the firms began computerization about 2000. In
terms of sophistication of use, the use of information systems to process transactions was
above average, while its use in supporting management in monitoring and control tasks, and
in decision making were lower.
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Table 2:
Number of Firms by Type of Business Activities Computerized
Business Activities Computerized
Primary Activities
Operations: Provision of services,
production of Goods, etc
Sales and marketing
Distribution of products/services
Receiving, storing and distributing raw
materials, goods or other resources
needed for operations
After-sales Service
Table 3:
No.
Business Activities Computerized
Support Activities
Finance and Accounting
97
No.
160
83
58
General Administration
Human
Resources/personnel
Management
97
50
57
Procurement/Purchasing
43
40
Research and development/product
development
others
19
2
Extent of Involvement of General manager/Managing Director in IT
Activities
IT Activities
Selecting vendor
Planning for IT Acquisitions and Applications beyond a
1-year time Horizon
Approving major IT Projects
Evaluating Technologies Not Currently Used in the
Organization
Setting IT Policies
Recruiting Key IT Personnel
Extent of Involvement
Mean
Standard
Deviation
4.57 (166)
1.67
4.55 (166)
1.73
4.50 (163)
4.34 (167)
1.79
1.76
4.30 (158)
3.85 (149)
1.82
1.91
N.B. The number in brackets refers to the number in each category.
IT Infrastructure
The measures for the hardware component of infrastructure indicate that, on the average, the
ratio of employees to PCs or terminals is 3 to 1. the majority of the PCs, about two-thirds, are
stand-alone, that is , they are not connected to a network within the organization. The
majority of firms (approximately two-thirds also) do not use electronic linkages to business
partner. Electronic communication occurs most frequently with the government. Among the
firms that do use electronic linkages with business partners, most rate their extent of use
below average.
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In terms of IT management practices, the managing directors of small firms are reasonably
involved in the IT planning, major acquisition decisions, and policy making (see table 3). As
a result the overall level of integration between IT and business plans is also about average
(see table 4). However, less than half the small firms have guidelines even in frequently
encountered areas such as hardware and software acquisition, justification of IT investment,
and security.
Table 4:
Extent of Integration of IT and Business Planning
IT Planning Process
IT Plans are incorporated into organization’s long-term
Business
Business plans are used as a basis for developing the IT
plan
Person in charge of IT participates in formulating
organization’s strategic business plans
Extent of Integration
Mean
Standard
Deviation
4.18 (195)
1.86
4.02 (194)
1.83
3.81 (195)
1.91
N.B. The number in brackets refers to the number in each category.
EXPLORING THE DIFFERENCE IN COMPUTERIZATION PROFILES BETWEEN
HIGH AND LOW PERFORMING FIRMS
Interestingly, there were no significant differences between high and low performing firms
with regard to the amount spent on computing (see table 50. This supports our belief that how
much a firm spends on computing matter less than what they spend it on. However, a
suggestive pattern of differences was also observed for the applications portfolio. High
performing firms had computerized a significantly higher number of business activities (4.34
compared to 2.81 for high versus low performing firms, significant at 0.01 level). The
business activities that high performing firms were more likely to have computerized were
receiving and stores, distribution, and procurement. The larger number of business activities
computerized may be a reflection of the headstart gained by high performing firms because
they began computerization about a year earlier than low performing firms (average age of
applications portfolio being 4.3 years compared to 3.1 year respectively, significant at 0.01
level). There were no significant differences in the overall use of computing to support
transaction processing, control and monitoring task, and decision making.
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Table 5:
1991 IT Expenditure (In Categories) by High and Low Performance
Firms
1991 IT Expenditure (In
Categories)
High Performers (N=33)
Mean
Standard
Low Performers (N=33)
Mean
Deviation
Standard
Chi-Square
Deviation
In Dollar
1.21
0.49
1.11
0.40
0.569
As % of Total Operating
1.85
1.68
2.46
1.36
0.504
2.03
1.70
1.77
1.54
0.542
expenses
As % of Revenue
There were no significant differences in the measures for hardware intensity. However,
managing directors of high performing were significantly more involved in IT activities, and
the IT and business processes were also significantly more integrated (see Table 6 and 7).
High performing firms were also more likely to have guidelines on several areas of IT
practice.
Table 6:
Extent of Involvement of General Manager/Managing Director in IT
Activities by High and Low Performance Firms
In Activities
Planning for IT Acquisitions
and Applications beyond a 1year Time Horizon
Approving Major IT Projects
Evaluating Technologies not
Currently used in the
Organization
Setting IT Policies
Recruiting Key IT Personnel
Selecting Vendors
High Performers
Low Performers
Chi-Square
Mean
Standard
Deviation
Mean
Standard
Deviation
5.25
(49)
5.33 (48)
1.42
4.15
(41)
3.73 (40)
1.84
0.0168*
1.97
0.0004**
5.18
(51)
5.06 (50)
4.68 (47)
5.16 (51)
1.24
3.73
(37)
3.77 (35)
3.09 (34)
4.00 (37)
1.97
0.0015**
2.09
2.18
1.58
0.0085**
0.0002**
0.0060**
1.31
1.41
1.62
1.49
N.B. The number in the brackets refers to the number in each category.
* Significant at < 0.05
** Significant at <0.01
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Table 7:
Extent of Integration of IT and Business Planning – High and Low
Performing Firms
In Activities
Person in charge of IT
participates in Formulating
Organization’s
Strategic
Business Plans
IT plans are Incorporated into
Organization’s
Long-term
Business Plans
Business Plans are used as a
Basis for Developing the IT
Plans
* Significant at < 0.05
High Performers (N=53)
Low Performers (N=51)
Chi-Square
Mean
Standard
Deviation
Mean
Standard
Deviation
4.55
1.88
3.08
1.83
0.0053**
5.00
1.73
3.51
1. 79
0.0039**
4.70
1.75
3.51
1.87
0.0424*
** Significant at <0.01
DISCUSSION OF FINDINGS AND CONCLUSIONS
Small business firms in Nigeria typically have significant hardware investments (50% of
annual IT expenditure, and ratio of three employees to 1 PC or terminal), but the findings
suggest that the business potential of these investments are not being fully tapped. The fact
that most of the PCs are standalone, and the fact that many primary activities remain noncomputerized, suggest that the potential for synergistic sharing of information across business
functions for better coordination and decision making is largely untapped.
The findings from the comparison between high and low performing firms support the view
that computing hardware, which for small firms is largely PC based, may have become so
pervasive that it is no longer a differentiating factor among firms. The finding suggest that the
applications portfolio and the management of IT resources are the key areas to focus on.
Within the applications portfolio, the payoff may come more from computerizing activities
such as receiving and warehousing, distribution, and procurement. The fact that firms which
computerized these activities also tend to have begun computerization earlier suggest that it is
usual to climb the computerization learning curve by first computerizing the more structured,
and less turbulent support activities, such as finance and accounting, and general
administration. The second area of focus: the need for senior management involvement and
integration of IT and business planning, may be well established in the IT management
11
literature, but the lower than average levels recorded among low performing firms suggests
that the lessons have not been assimilated by a significant number of firms.
As small firms move out of their initial phase of computerization, their “second wave”
application areas are supplier and customer interface activities such as purchasing, receiving
and warehousing, and distribution. These areas are also particularly good candidates for
electronic linkages with business partners. The computerization of these areas and the
establishment of electronic linkages with suppliers, customers and banks, are areas which the
progressive small firm should consider.
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