Friday, April 16, 2010

Small firms and information Technologies (II)

The theory of representation might be considered as a restriction for the implementation of new technologies, as long as it cares mainly with the enforcement of every employee contract. Besides, it might also rules out the implementation of the planning process, a basic requirement for information technology to be useful, as long as the contract does not allow any new task other than the one already set in.
However, the real issue with this approach, deals with the handling of risk. In fact, contracts reduce the propensity to risky behaviour of managers, the same way it reduces the necessity of planning. Given that new information technologies by definition, are friendly with risk behaviour,(more information imply better risk control), those contracts will allow only the risk which the firm can pay for ,restricting the potential of information technology to be fully implemented .A different matter is the profit maximization process , in this case subject to a different constraint, which is a set of contracts to enforce, aside from the financial resources available, make in this view ,the maximization process a more limited target.-
Back to the study of these Greeks economist , they classified the IT within the following categories: Enterprise system(ERP,CRM,SCM),Information system (TPS,MIS,DSS,ESS), Digital technologies(E–Business, E-Commerce), telecommunications net works (Wired, wireless).-
Some finding concerning information systems indicates that small firms prefer MIS(Management Information System) ,rather than DSS (Decision Support System), which is used by 34,8% of all small firms ,whereas 50% of small and 77,8 % of medium firms prefers MIS. The enterprise resource planning(ERP) system, is used by 59,1% of small firms ,and 88,9% of medium size firms. This applications, is consistent with the representation theory, as long as it deals with a better picture of human resources performance, inventory levels and information needs ,both at the horizontal and vertical levels.-
The customer relationship management (CRM), is applied at a rate of 45,5% by the small firms, and 55,6% by the medium size firms. These percentages are low for the standard of any firms customer - led management approach , but they reflect the focus of many small firms , mainly the short run and daily needs of cash flow.
On the other side, the Supply chain management(SCM), is used by a very low percentage of firms.28,6% of small firms, and 28,6% of medium size firms.
The overall picture indicates that SCM is used by 32,3% , while CRM is used by 42,6%, and ERP is used by 44,4% of small firms. No matter this percentages, the implementation of ICT, is not too much linked to firm size, but more to the functions and goals each firms might set for these instrument . However, the bigger the size of firms, the better the chance of implementing these technologies, taking full advantage of their potential. In such a case ,the determinant factor for success , will be to have a proper ICT strategy, coupled with the right market focus.
In Greece, small firms, do not have a clear policy concerning implementation of new information technology. Whether this is a global characteristic of small firms, it is a worrisome situation , given the fact that most of the globalization dynamics lay down on the ability of small firms to adapt to new market conditions at a global scale. If they do not have a more aggressive stand on this new technologies, it might be more difficult for them to consolidate new markets opportunities.

Thursday, April 01, 2010

Small firms and information Technologies (I)

It has been quite usual to assume that because there are new information technologies available, it should have a positive impact on management had they are applied. However, the empirical results does not follow the path of a straight line.
A recent research done by Greek economists o(Global Journal of Business Research, Volume NÂș 4 ,Number 1, “An empirical study of Small and medium sized enterprise information communication technologies”,2010), concludes that smaller firms do not consider technologies other than those related to specific functional matters, while larger ones (from 10 up to 250 workers), based on these technologies, try to integrate their processes. Thus the main concern is to support the internal horizontal development( It means to get the organization flatter ) , taking into account internal vertical development (Management requirements to make sure positive financial results. In other words , using information technologies is related with the unification of internal with external environment (markets ).-
What are the implications of these findings?. A better understandings about them, require to take a look at the justification for using information technologies within firms. From the microeconomic theory point of view ,there are two approaches about firms structure :The theory of transaction cost, and The theory of representation.
According to the theory of transaction cost, firms expand up to the point that their organizational internal cost ,are just equal to the external cost of getting the same product from other firms. If these costs are higher, firms will try to reduce it both throughout externalization or better management skills. This management skills, includes new technologies ( not to mention cultural values), whose purpose is to increase productivity such that the expected lower operational cost, keep the organization more efficient that their competitors. In this process, firms substitute labour specially unskilled one. The more skilled labour, is complementary with higher capital value, arising from new information technologies equipment available .Physical Capital stock might also decrease, because what it counts in terms of efficiency is capital flow(information, data, prospective analysis).The design process within the automobile industry is a good example, of this substitution.
These days ,such a process is done mainly using computers simulation which imply less period of time to get the final design( a car) ready to be produced. Quite different to the experience of designing the Ford Mustang in the seventies, even with a highly qualified team, with Lee Iacocca as their leader took more than one year.
The theory of representation ,assumes the firm as a set of contract between different people, with different interests and not necessarily connected with the firm maximization profit purposes. The only way to take control of such disparity and its implications in terms of cost ( these people need to be managed, supervised and controlled) , is using contracts , but these contracts supervision also means higher cost. Thus information technology, allow firms to reduce such a cost, because it allows the implementation of shared values center ,and better contracts management, keeping cost pressures under control.-