STRA TEGY

SMALL BUSINESS BRIEF

THE INTEGRATION OF COMPUTFR TECHNOLOGY
IN SMALL BUSINESSES

Leanne C. McGrath
University of South Carolina Aiken

I eaiineitliii,.'oiken.sc.erin

Richard A. Heiens
University of South Carolina Aiken

Ri chardII!itraiken.soedu

ABSTRACT

In an effiin io iiuire fiilli imdersiand ihe use of coinputers and information technology in ihe
snuill business sector, a survey ives conducted of small business owners in tire state of Souih
Carolina. Based oii this snrvey, ihe preseni study investigates the exieni of coniputer and
information technologt integration in sniall businesses, identifies the nijaor coniputer
applicatioiis used by small biminess, and explores the use ofe-niail and Internet technology by
smal! bnsinesses. The imthors coiiclude that sniall business owners do not sufficiently take
advontage of coinpiiters and inforniation technology for either operational or strategic
assistance, or for comiinmicutions and promoiion.

INTRODUCTION

Computers are becoming much more powerful all the time. In fact, each new generation is
incredibly more powerful, faster, and has an increasingly larger capacity than the last.

Kids'ames

have more computing power than the most powerful mainframe computers had 20
years ago, and some greeting cards today have more computing power than existed on earth
before 1950 (Pilarski, 1997). It is not surprising then that numerous surveys on small business
all point to the same conclusion, "small firms have to keep pace with technological changes if
they want to keep a competitive edge" (Bridge E; Peel, 1999). Moreover, "small business has
a reputation for moving quickly and taking risks" (Hise, 1996). Consequently, conventional
wisdom would suggest that small businesses should be ardent users of computers and
information technology. Nevertheless, research on small business and anecdotal evidence
both seem to suggest that this is not the case (Howard, 1997).

In an effort to more fully understand the use of computers and information technology in the
small business sector, a survey was conducted of small business owners in the state of South
Carolina. Based on this survey, the present study investigates the extent of computer and

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Journal ofSmall Business Strategy lrol. /2, lvo. I Spring/Summer 2001

information technology integration in small businesses, identifies the major computer

applications used by small business, explores the use of e-mail and Internet technology by
small businesses and concludes with a set of managerial implications and recommendations.

INFORMATION TECHNOLOGY AND SMALL BUSINESS

Traditionally, information technology has been used most extensively for administration and

operational tasks. In this administrative support role, computer aided systems were

commonly used to support accounting, budgeting, inventory control, word processing, and

spreadsheet analysis (Farhoomand & Hrycyk, 1985; Nickel) & Seado, 1986). However, with

the increasing sophistication of current information technology, many believe that information

technology has transcended beyond its traditional administrative support role to be used as a

strategic weapon to gain sustainable advantages and support the competitive position of the

firm (Pollard & Hayne, 1998).

Rather than being confined to operational matters, information technology has moved from

simple record keeping to decision-making. Computers are now used to assist with such

strategic planning issues as financial modeling, forecasting, production planning, and sales

planning (Bridge & Peel, 1999). When applied to small businesses, such applications have

the potential to provide smaller firms with a competitive advantage and to allow them to

compete on a more equal footing with larger organizations (Fuller, 1996; Pollard & Hayne,

1998).

One striking example of this potential is the ability of small firms to compete directly with

large firms through an electronic presence on the Internet (Pollard & Hayne, 1998). Although

the U.S. Small Business Administration estimates that 47 percent of small businesses have
access to the Internet, only 35 percent actually maintain a web site (U.S. Small Business

Administration, 1999a). The percentage of small businesses with web sites is even smaller in

some markets. for example, one recent study in the Houston area indicated that only 25

percent of small businesses had a Web site (Houston Business Journal, 2000). Moreover,

only 16 percent of small businesses that use the Internet are selling products or taking sales
leads over the Internet (Computer Industry Report, 1998). According to Pollard and Hayne

(1998), the majority of small businesses do not take advantage of the tremendous power
afforded by current information technology largely because they do not have the resources to

take advantage of information technology. In addition, many small businesses still have a low

level of information technology expertise.

THE PRESENT STUDY

ln order to further explore the use of information technology among small businesses, a
survey of small business owners in the state of South Carolina was conducted. For the
purpose of this study, a small business was defined as a business having 50 or fewer

employees. In conjunction with the Small Business Development Center of South Carolina, a

sample consisting of 455 businesses was obtained from an initial mailing of 4052. The

resulting 11.23 percent response rate is about par for a "cold" mail survey of this type (Dillon,

Madden, & Firtle, 1987).

In aggregate, 55.1 percent of the small businesses in this sample had two to nine employees;
17.1 percent had ten to nineteen employees; and 16.9 percent had one employee. Retailers

comprised 31.2 percent of the sample, the largest single group, followed by firms in the
services category, including personal services (21.6%) and business services (16.2%). The
gender of the majority of the responding owners was male (73%), and the average age of all
owners was 50.

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.io omni ofSmoii Dtcri neat Srroiegy Vol. /2, No . I Spring/Summer 2001

According to the U.S. Small Business Administration (1999b), there were approximately
82,250 businesses with fewer than 500 employees operating in the state of South Carolina in
1998. Of this total, approximately 32.3 percent were women-owned businesses. By
comparison, women owned only 27 percent of our sampled businesses. In addition, retailers
comprise approximately 24 percent of all businesses in South Carolina with fewer than 20
employees, compared with just over 31 percent for our sample. Consequently, given that the
sample is not entirely representative of South Carolina small businesses in terms of the gender
of owners and the line of trade, caution must be taken when generalizing our findings.

FINDINGS

The first issue ol'nterest was the extent of computer and information technology integration
in small businesses. Businesses in the present sample reported that an average of 43 percent
of employees use computers on a regular basis in their work, while only 10.1 percent of
employees use a computer 50 percent of the time or more at work. Furthermore, 25.7 percent
of respondents said that their employees do not use a computer at all in their work.

As one writer concludes, most people who use computers use them as enjoyment, not as tools
(Pilarski, 1997). I lowever, if used effectively, computers and information technology can be
expected to result in substantial productivity increases for small businesses. In fact, according
to the U.S. Small Business Administration, small businesses that use the Internet have higher
revenues, averaging $3.79 million in 1998 compared to $2.72 million overall (U.S. Small
Business Administration, 1999a).

The second objective of the study was to identify the major computer applications used by
small businesses. The results are reported in Table 1. Respondents were instructed to check
as many catcgorics as apply.

TABLE I: Small Business Computer Applications

Word Processing 63.3 %
Accounts Receivable 59.1 %
Accounts Payable 51.8%
Payroll 49.5 %
General Ledger 46 9%
Spreadsheets 41.4 %
Inventory 38.5 %
Tax Preparation Programs 34.9%
Graphics Applications 30.2 %
Data Base Management 28.9 %
Management 8.8 %

An -other" category was also provided for open-ended responses and resulted in 74 replies.
Those replies listed with a frequency of between five and ten were cash register, industry
specific software, engineering, and estimations. Mentioned only once, even though
approximately one-third of the small businesses were in the retailing sector, were customer
profile, mailing programs, and appointments.

Our final objective was to explore the use of e-mail and Internet technology by small
businesses. Specifically, owners were asked whether their small business provided e-mail for

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Journal of Small Busmess Stra/egy Vo/. /2, No. l Spring/Summer 200/

employees. Only 20.4 percent answered affirmatively, while a resounding 79.6 percent
responded "no." The percentages for utilization were slightly higher when owners were asked
if they personally used e-mail to conduct business. These results were 29.3 percent stating
"yes" and 70.7 percent stating "no."

The ways in which small businesses use the Internet were also investigated. Responses are

included in Table 2, with respondents instructed again to check as many categories as apply.

TABLE 2: Ways That Small Businesses Use The Internet

Obtain Information 31.9%
Sell Own Products 12.0 %
Develop Leads 11.3%
Purchase Equipment 84%
Follow Economic Trends 7.9 %
Qualify Clients for Credit 2.9 %

Clearly the largest percentage of those responding used the Internet to obtain information.
Followin far behind were to sell products and to develop leads. Twenty-three responses

were gathered in the 'other" category provided. Those listed with a frequency ofbetween two

and six in descending order were: for ads, to communicate with clients/suppliers, and to find

vendors. To place orders and to post job openings tied for last place.

Whether the small business had its own web site was also questioned. Only 18.8 percent
answered 'yes" to a web site while 81.2 percent indicated that they did not have a web site.
Of these, it was further asked when their small businesses were planning to have a web site.

The responses of those that replied to this additional question included 17.2 percent answering
"soon," 13.8 percent indicating "next year", 20.7 percent indicating "this year", 20.7 percent
answering 'don't plan/not in the near future/not soon", and 14.9 percent replying "never."

In order to understand the potential benefits for small businesses afforded by information

technology, another question asked the owners to identify the top five challenges for strategic

planning that their small business was currently facing. In order, they were: cash flow (39%),
competition (32.6%), taxes (32.4%), controlling costs (29.7%), management (28.6%), and

employee productivity (28.2%). Following closely behind these were health insurance,
quality of labor, regulations/red tape, advertising/promotion, and government regulations, all
above 20 percent. Only 13.2 percent of small businesses selected technology applications/use
of computers as one of the top five challenges facing their business. A complete reporting of
challenges and their respective percentages in descending order are in Table 3.

Supplementary to the challenges issue was a question concerning whether the respective small

businesses plan to increase emphasis on the company's technological capabilities within the

next two years in order to increase their competitiveness. A four point Likert scale ranging

from responses of "none" to "a lot of emphasis" was used. Results are in Table 4. Just over
two-thirds at 69 percent showed "some" or "a lot of'lanned emphasis on technology while
almost 13 percent planned "no" emphasis in this category.

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TABLE 3: Strategic Planning Challenges Facing Small Businesses

Cash Flow 39.0 %
Competition 32.6%
Taxes 32.4 %
Controlling Costs 29.7 %
Management 28.6%
fmployec Productivity 28 2%
I.lealth Insurance 26.9 %
Quality of Labor 25.3 %
Re ulations/Red Tape 24.9 %
Advertisin/Promotion 22.0 %
Government Regulations 21.1%
Employee Skills 20.0%
Customer Service I 6.3 %
Labor Costs I 5.4 %
Technology Applications/ 13 2%
Use of Computers
Accounts Receivable 13.0%
Accounting/Bookkeeping 12.8%
Inventory Management 12.6%
Fmployee Benefits 12.1 %
Long Range Planning 11.7%
Competing Strategies 11.0%
Financing 10.4 %
Inflation 7.7%
Worker's Compensation 7.0 %
Weak Demand 6.2 %
Supplier Relationships 5.7 %
Compensation 5.5 %
Creditor/Bank Relationships 4.6 %
How to Export 0,9%
How to Import 0.9 %
Procurement 0.9 %

TABLE 4: Fmphasis on Increase in Firm's Technological Capabilities

A lot of emphasis 24.5 %
Some emphasis 44 5%
Not very much emphasis 18.5 %
None 12.5 %

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Journal of Small Business Straiegy Vol. /2, No. l Spring/Summer 200l

A perception question of how important the small business owners viewed technoiogy to the
operation of their small business was also posed. The results are reported in Table 5.

TABLE 5: Importance of Technology to Operation of Small Business

Very Important 40.5 %
Somewhat Important 36.7 %
Somewhat Unimportant 11.2 %
Not Important At All 11.6%

Overall, 77.2 percent of owners felt that technology was "very important" or "somewhat
important" to the running of their small business. Just over one-fifth of owners did not share
this view of the importance of technology to their business operations. The cross tabulation
between "the importance of technology to the operation of the small business" and the
"planned emphasis on technology" is presented in Table 6. A Chi-squared test revealed that
cell sizes in the cross tabulation were significantly different ()I' 140, d.f. = 9, p& .0001). In
addition, Table 7 shows the cross tabulation between "the importance of technology to the
operation of the small business" and whether or not the company has a web site. Once again,
a Chi-squared test revealed that cell sizes in the cross tabulation were significantly different

(yt = 48, d.f. = 3. p& .0001).

TABLE 6: Planned Emphasis on Increase in Firm's Technological Capabilities by
Importance of Technology to the Operation of Business

Planned emphasis on Importance of technology to the operation of business
increase in firm's
technological capabilities

Not
mtportant Somewhat Somewhat Irery

at all unimportant important important Toiai

None 22 7 15 9 53
Noi Very Much Emphasis 16 20 28 15 79

Some Emphasis 10 21 87 76 194

A Lot of Emphasis I I 28 78 108

Total 49 49 158 178 434

TABLE 7: Company Has Web Site by Importance of Technology to Business Operation

Importance of technology to the operation of business
Ãoi Someirhai Somewhat Very

imponant unimportant important important Total

at all

Company bas No 49 48 140 117 354

Web Site Ycs 2 I 20 61 84

Total 51 49 160 178 438

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Jvitrnal vf Sniall Business Siraiegv Vol 12, No. 1 Spring/Summer 2001

DISCUSSION

This exploratory research identifies that not many small businesses (13.2%) are putting
technology applications and computer usage as a top strategic planning issue. Interestingly, in
four of the top challenges that are identified, specifically cash liow, competition, controlling
costs, and management, the utilization of computer technology has tremendous potential to
help. However, slightly over one-fourth of small businesses report "no" computer usage by
employees on a regular basis. and only about 10 percent of employees use a computer 50
percent of the time.

Of those employees using the computer on a regular basis as reported in Table I, a relatively
low percentage uses each of the most critical applications. Most users report the use of
computers for word processing, but considerably fewer use them for areas with great potential
impact on managing the business (i.e. general ledger, spreadsheets, inventory management,
and database management). Spreadsheets to track cash flow and control costs are used by
only 414 percent of the small businesses, roughly equivalent to the percentage listing cash
flow as an important challenge. Data base management that could be employed to track
customers and maximize marketing efforts is utilized by only 28.9 percent of small
businesses. Lagging in last place is the general management category at 8.8 percent. Surely
management is the primary concern of every small business. Nevertheless, the use of
technology applications and computer programs for small business management is apparently
being shortchanged.

Connecting to the Internet is becoming increasingly essential for business today. Large
companies are leading the way in this explosive technological area. In querying small
businesses about the ways they use the Internet, 31.9 percent report obtaining information as
their reason for access rather than business development and promotion. Selling their
products on the Internet is listed by 12 percent even though 31.2 percent of the small
businesses surveyed are in retailing. Also only 18.8 percent of the small businesses indicate
that they have their own web site to promote their business and reach a large audience.

Overall, thc results appear to demonstrate an inconsistency on the part of small business
owners. As revealed in Table 7, although 41 percent of business owners surveyed indicated
that technology was "very important" to the operation of their business, only 34 percent of
those firms actually have a web site. Small businesses, especially retailers, are missing an
opportunity and will soon be too far behind to catch the leaders.

Moreover, even for the more basic computer application of using e-mail, only 20.4 percent of
small businesses provide it for their employees and only 29.3 percent of owners use e-mail to
actually conduct their business. Consequently, approximately 70 percent of small businesses
surveyed are missing the opportunity for continual and instant communication with current
and potential customers and suppliers. More alarming is the fact that small businesses do not
appear to be moving to correct this technological timidity. As revealed in Table 6, only 44
percent of those firms who view technology as "very important" actually plan to place "a lot
of emphasis" on increasing the firm's technological capabilities.

If an issue is important to a small business, then clearly emphasis should be focused in that
area. It simply must be addressed. For example, in the human resources areas of employment
benefits, insurance, and payroll/relevant taxes, computerization would allow faster, easier, and
more accurate tracking and controlling of costs and benefits. In health and safety areas,
compliance with governmental guidelines, regulations, and red tape can reduce exposure and
preclude legal ramifications. Integrating the use of technology to help with the pressing day
to day issues, such as cash tlow for small business owners, would certainly be valuable and in

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Jour nal of Small Business Strategy Vol. /2, b/o. I Spring/Summer 200I

the end would help to alleviate some of the day to day cash squeeze commonly faced by small

business owners.

This research clearly shows the need for and acknowledges the importance of technology

application and computer usage in small businesses. It should serve as an alert for all small

business owners. If small businesses are to compete effectively with larger enterprises, then

they must begin to take advantage of both the operational and strategic benefits afforded by
modem information technology.

REFERENCES

Bridge, J., & Peel, M.J. (1999).A study of computer usage and strategic planning in the SME
sector. International Small Business Journal 17(4), 82-87.

Dillon, W.R., Madden, T.J., & Firtle, N.H. (1987}. Marketin research in a marketin
environment. St. Louis, MO: Times Mirror Mosby.

Farhoomand, R., & Hrycyk, G. (1985). The feasibility of computers in the small business
environment. American Journal of Small Business 9(4), 15-22.

fuller, T. (1996). Fulfilling IT needs in small businesses: A recursive learning model.
International

Small Business Journal 14(4), 25-44.
Hl, P. (1998, A g ). B h k: S II b I b h . I~M

I 8(I I),102.
Howard, K. (1997, July). IT means business? Institute of Mana ement Re ort, pp. 1-4.

Nickell, G., & Seado, P. (1986). The impact of attitudes and experience on small business
computer use. American Journal of Small Business 10(1), 37-48.

Pll kl. A. (1991.Sp VF II). C p — H d h 9 . 8 1 F 22(2-3),
74-75.

Pollard, C. E., & Hayne, S.C. (1998).The changing face of information system issues in small
firms. International Small Business Journal 16(3),70-88.

Small business slow to jump on e-commerce bandwagon. (2000, January 14). Houston

Business Journal 30(35). I I .
S )lb I:A hy dyl - . (1998.Ag ).C~(d

~Re ort 33(8), 1-8.
U.S. Small Business Administration (July, 1999a). E-Commerce: Small businesses venture

online. Retrieved January 16, 2001, from World Wide Web:

http: //www.sba.gov/ADVO/stats/e comm.pdf
U.S. Small Business Administration (1999b). 1999 Small business profile: South Carolina.

Retrieved January 16, 2001, from World Wide Web:

http: //www.sba.gov/ADVO/stats/profiles/99sc.pdf

Leanne McGrath, Ph.D. is an associate professor of management in the School of Business
Administration at the University of South Caroh'na Aiken. She holds BS and MS. degrees in
Pharniacy, and MBA and Ph.D. degrees in Business Administraiion, a//Porn the University of
South Carolina. Dr. McGrath has a wide range of research interests. She has presented

papers at nunierous regional, national, and international conferences and published in the

ureas of corporate strategy, e-business, small business, and human resources management.

Richard A. Heiens, Ph.D. is an assistant professor of marketing in the School of Business
Administration at the University of South Carolina Aiken. He holds B S and Ph D degreesin
marketing from Florida State University. His primary research inrerests are in rhe areas of
business. strategy and promotion. Dr. Heiens has published research articles in a variety of
academicjournals, including the S(rategic Management Journal, the Journal of Education for
Business and the Journal of Business and Industrial Marketing.

69