ict based means for automation and innovation

7/25/2019 ICT BASED MEANS FOR AUTOMATION AND INNOVATION

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ICT adoption, economic performance and internationalisation of SMEs

Today there is a strong need to collect more revealing data on ICT utilization and

its impact on SMEs, the need for more rigorous analysis of how ICT investment and

use affects innovation, and the need for better understanding of how this complex

translates into productivity increases and enhanced competitiveness. Accordingly, the

main research questions are as follows:

What is the contribution of ICT adoption to the economic performance of

SMEs?

What is the contribution of ICT adoption to innovation in SMEs?

What are the enablers, barriers, and constraints for ICT utilization?

Through statistical analysis it is possible to make a comparison with findings from

different studies conducted for Europe and the United States, to ascertain whether there

are any particular characteristics of ICT adoption and its various impacts. In addition to

providing reliable data and analysis of ICT utilization and its effects, the study

identifies a set of recommendations that can guide decision-making at firm and

government levels. How to correlate SMEs in the internationalisation processes or

whether they only function as suppliers in global value chains, dominated by large-scale

transnational enterprises, is an open question. Without doubt, the current wave of

internationalisation is accelerating the diffusion of innovation across industries. Yet it isunclear whether SMEs are driven by globalisation or whether they are a driving force in

this process.

Efficiency criteria


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This book provides some methods from various empirical surveys to enrich the

on-going discussion, focusing on innovation and internationalisation in SMEs. In our

survey we considered enterprises which either employ less than 250 employees or havea turnover of less than 50 m Euro.

ICT is a technology of growing importance in all countries surveyed. Access to

the Internet is almost universal among the firms surveyed (99 percent of all firms).

About 98 percent of all enterprises used e-mail and 44 percent used an Intranet

provision. Local area networks are also rather popular (74 percent). However, the

nature of the access and its use are very different among the firms, as summarized in the

Figure below. It is mainly the less advanced ICT that is quickly spread in the region,

rather than the most recent generations. The latter is very much dependent on the

technical infrastructure available within the individual countries, which was found to

vary greatly in the sample. Nevertheless, perhaps contrary to expectations, companiesdo not find the technical infrastructure (defined as network reliability, network

flexibility, and range of available services or geographic coverage) disturbing and

hampering their activities. About 70 percent of the companies surveyed state that

telecommunication prices do not inhibit the use of ICT. Moreover, companies use ICT

to serve customers and markets. About half of the companies in the survey place a high

priority on two interrelated business areas: purchasing and procurement, and marketing

and sales. Firms actively use computer networks for these activities and almost all of

them are using the Internet to buy and sell goods and services. The Internet is a

common means for servicing customers, providing them with information on products

and services, contact facilities and often after-sales support. Market/customer related

activities are automated within half of the firms. This seems to be the primary driving

force for automation and ICT use in other business areas such as procurement and

purchasing, finance (especially invoicing), delivery, and stock control.

It is clear from this study that ICT utilization is already having an impact on

economic performance among firms in transition countries. This is reflected in the

findings on the impact of ICT on economic performance, where it is evident that ICT is

a substantial contributor to productivity, profitability, and growth. Moreover, the fact

that 30 percent of the firms say that ICT usage itself generates increases in ICT

investment indicates that engagement in ICT usage is to a certain extent a self-

sustaining process that requires cumulative investment. However, while the use of ICT

is resulting in improved economic performance of firms, it is important to note that ICTutilization does not automatically translate into economic impacts but requires a range

of complementary factors. Hence, one of the most notable findings relates to the factors

shaping ICT utilization and impact on economic performance. The Figure below

depicts the factors that contribute to the positive impact of ICT in SMEs.


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Factors Reinforcing the Positive Effect of ICT in SMEs

Accordingly, a new marketing strategy is particularly relevant for translating the

introduction and use of ICT into the improvement of profitability. This is mainly

because the use of ICT together with new marketing initiatives enables firms to

strengthen their position in existing markets or enter new markets, thereby improve

profitability. ICT and investment in equipment is particularly important for lowering

operational costs and increasing revenue. This is perhaps not surprising, as ICT is said

to allow for new and more efficient production processes, which in turn require

investment in new equipment. The impact of ICT on production processes thus does not

primarily arise from ICT in itself. Rather, ICT is a means by which new and moreefficient production processes can be achieved when combined with new equipment.

Organizational change is particularly important for achieving greater labour

productivity, lower operational costs, and higher revenues. The close correlation

between these dimensions of improved economic performance from ICT and

organizational change identified in this study corresponds well with findings from other

studies on the impact of ICT on firm performance. It has thus often been argued that the

effective utilization of ICT requires more horizontal organizational structures with

greater levels of responsibility for the overall coordination of work placed on the

individual employee. It also requires the implementation of clearer functional

descriptions of tasks. All this often requires a complete re-shaping of the organizationalstructure of the firm where all aspects of the organizational development are

consequently given attention. This view is further supported by the case studies

conducted as part of this project, which highlighted the importance of changes in

organizational structures and ensuring that every employee has a sense of responsibility

for their work.

These findings also have to be seen in the light of the wider transition process that

shapes the context in which the firms operate. Hence, it is important to note that the

firms are going through a period of rapid modernization, emphasizing improved

production processes and flexible organizations that can address the needs of the


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market, as part of transformations of the socio-economic fabric to a market-driven

economy. This may in part explain why ICT is combined with other factors, such as

new marketing strategies and organizational change, for improved economicperformance.

In addition, it is worth noting that the size of the firm appears to matter when ICT

and performance profitability the attribution of positive effect to ICT (mainly or along

with other factors) ranges between 67 percent and 61 percent for large firms and

between 55 percent and 53 percent for micro and small enterprises. Micro and small

enterprises score relatively better for revenue increases than for cost reductions. For

revenue increases, the difference between micro and small and large enterprises is 19

percent while for cost reduction it is16 percent.

The introduction, use, and impact of ICT is not only determined by the

characteristics of the individual firm, but also by the nature of the goods or servicesbeing produced and sold. More specifically, there appears to be a strong correlation

between the information intensity of the product and the capacity of firms to use ICT

to increase performance. This involves both product characteristics as well as

transaction characteristics. In other words, it is not the nature of the tangible or

intangible product that determines the extent to which ICT can be used to improve

performance, but the extent to which procurement, production, and sales processes are

information rich or information poor.

However, these findings should be interpreted with great caution. Our regional

samples have been constituted to be representative of the geographical area under

scrutiny. Sectors were chosen that are important for the economies of those regions. As

a consequence, the industrial composition of our sample varies considerably per

country, leaving little scope for rigorous comparative analysis. It may seem paradoxical

that samples which are more or less representative of regional economies cannot be

compared but, as is demonstrated in this study, the rate of adoption and potential effects

of ICT usage on firm performance vary significantly per sector, and differences in the

sectorial composition of the economy in the different regions may therefore determine

regional outcomes. Proof of this was obtained by comparing the different regional

samples. Many differences were found, but most of them could not be explained

without taking into account the incidental influence on a given regional sample of non-

comparable sectors. The proper way to infer regional or country differences is thus to

operate by triangulation, i.e. to find out about residual differences by comparingidentical sectors or industries in different countries. Unfortunately, when applied with

rigour this approach yields only a relatively small sample of three sectors (food, ICT

and retail). It may well be, for example, that the rate of adoption of ICT in a given

country is higher in absolute terms but the pace of adoption has recently been higher in

another country.


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Sector related key findings on ICT and economic performance

In addition to identifying the immediate impact of ICT on the economic

performance of SMEs, it is possible to identify how firms use ICT to improve their

future performance, namely through innovation. ICT in itself is only a minor facilitator

of innovation; it only becomes powerful in combination with a number of other

complementary factors.

Factors contributing to innovation

In most of the sectors surveyed, ICT contributes more to process innovation than

to product and relational innovation. The use of ICT is thus mainly for changes in

production processes within the organization, rather than the development of new

products or the furthering of relationships especially with suppliers. It was found that

relatively fewer firms report decreasing costs as a result of ICT. Rather, the contribution

of ICT to product innovation was higher in the European sample. Even more significant

was the contribution of ICT to relational innovation, in particular the contribution of

ICT to increasing customer loyalty and consolidating preferential relations with

suppliers. The comparison confirms that SMEs can rapidly modernizing their


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organizational structures. The effect of ICT use on internal organization is likely to be

more marginal in firms that already have a highly streamlined internal organization and

are already well adapted to the market economy. It is also easier for firms that arestructurally modernizing to integrate ICT in the workings of their organizations.

However, it also leads to the conclusion that ICT usage is not comparatively

mature. Reaping the full benefits of ICT usage requires streamlining external and

internal transaction processes. Our findings indicate that European SMEs find it more

difficult to enter that stage. Several forms of ICT-driven product innovations,

particularly for intangible products, are conditional upon, or will only significantly pay-

off when external and internal processes are mutually integrated. Our findings indicate

that many if not most European companies have not yet reached that stage. However, in

time they may benefit from being second here as well.

ict based means for automation and innovation

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