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Article Excerpt
Abstract
While many large businesses start out as a small enterprise, remarkably little is known about how an organization actually changes internally during the periods of growth. Small business growth is known to strain internal communication processes, for example, which likely limits growth opportunities. Information systems are often called upon to remedy such deficiencies. Through a participatory action research project, we investigated the ways in which a small business management team developed an IS-enabled solution to address their growth needs. During the progression of the project, a new outcome of organizational effectiveness, internal transparency, was identified and developed. Adopting a punctuated equilibrium perspective, a theoretical process model is proposed that sheds light on a relationship between internal transparency, small business growth, and IS. The paper concludes with observations that internal transparency may well be a concept that offers significant potential for MIS research as well as a discussion about the applicability and credibility of participatory action research for this project.
Keywords: Business growth, IT investment, small business, internal transparency, process models.
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Introduction
Small businesses are an important and integral part of every nation's economy and have been long recognized as different from large businesses (Hambrick and Crozier 1985). In order to grow, small businesses must evolve their organization, incorporating changes to management structure, operational planning, control, and communication processes (Hanks 1990; Steinmetz 1969), without impairing the firm's competitive advantage. Failure to make these changes may result in harm to the business through stagnation, negative growth, loss of customers, and failure to introduce new products, potentially closing the business (Churchill and Lewis 1983; Hambrick and Crozier 1985). Information systems are often relied on to assist growth, although small businesses often find technology difficult to implement due to resource constraints (Raymond 1985).
There is significant research about the role of IS in small businesses (e.g., Cragg and King 1993; Harrison et al. 1997; Igbaria et al. 1997). While this research informs ours, this paper enters a new area: what happens to the IS of a small business as a growth period begins. Rather than seeking to understand the effect of the traits of an organization on important phenomena such as selection, adoption, and implementation, we focus on how those traits affect an organization's IS changes during the business' transition period. These transitions may be due to external factors (e.g., a general economic downturn requiring a decrease in size). Alternatively, a company's management may decide that they wish to try to grow proactively, through targeting a larger or more lucrative market. Our interest was the recursive relationship between this decision and the IS in the business: specifically, would there be a need to change the existing systems, what triggers this need to change, and what new or revised demands would these decisions have on the existing IS infrastructure?
A useful analytical framework is provided by punctuated equilibrium theory (PET) (e.g., Gersick 1991; Romanelli and Tushman 1994; Tushman and Romanelli 1985), a theory that has been adapted from evolutionary biology into management theory. Researchers who use PET typically focus on three concepts; evolutionary periods, revolutionary periods, and deep structures. From a PET perspective, it can be argued that organizational development is characterized by stable periods of evolutionary change that are occasionally punctuated by periods of rapid change (Gersick 1991; Van de Ven and Poole 1995). For example, an organization's IS can be seen as a form of deep structure. Managerial behaviors can alternately perpetuate or weaken existing structures (Orlikowski 2000; Orlikowski and Robey 1991). PET suggests that behavioral changes in response to punctuations cause structural changes. For example, the decision to change IS strategy and implementation in response to corporate strategy can be seen as a change in the deep structure as a response to short periods of sharp, extensive change (punctuation) (Sabherwal et al. 2001). From this perspective, the decision to grow can also be thought of as a punctuation and the information system as a deep structure that may change as the management team responds to the punctuation.
To address our research question, we joined with the five-member management team of a small Canadian manufacturing company to develop a research partnership using participatory action research (PAR). Before the project, the company owner had been searching for assistance to investigate how IS could be used to assist his firm through a planned growth period. This can be seen as his initial response to the punctuation. As expected, there were other behavioral changes in response to the punctuation from other management team members. The organization provided an excellent opportunity to investigate our area of theoretical interest: the effect on the deep structure of the information system of a small business in response to this type of punctuation. Through the project, a request for quotation (RFQ, a document upon which potential vendors can bid for a contract) for a new system was developed, satisfying the company's practical goals. In the end, a richer understanding of how growth pressures a company's information resources was reached, satisfying our research goals.
The paper proceeds as follows. Literature from the small business growth and information communication areas is presented. The description of a research project designed to address the questions posed above is followed by a narrative account of the project itself. The critical events that occurred during the project are then discussed, and an explanation is presented that resolves the issues raised during the project into a cohesive picture of what was happening in the company during the growth process. The paper concludes with the proposal of a process model and a discussion of the research and managerial implications of this project.
Theoretical Perspectives
The small business and information technology literature has seen considerable progress addressing specific adoption decisions and implementation practices. Our contribution lies in understanding the process by which a small business information system is changed in response to the organization entering a growth phase. To do this, we will integrate three research perspectives. First, an overview of the small business literature is provided. Second, we develop and define a construct, internal transparency, which reflects the extent to which the management team understands the activities and outcomes of the organization, which is partially determined by the team's communication behavior. Finally, small business growth models, and their framing of management team behaviors, specifically information sharing and communication behavior, are reviewed.
Small Businesses
Defining a small business is a controversial topic. Like many authors, we have adopted a commonly used definition from the U.S. Small Business Administration: a small business is independently owned and operated and not dominant in its field of operation (Small Business Administration 2003). For our discussion of small business, we are excluding microbusinesses of less than five employees (Hodgetts and Kuratko 2001) and focusing our attention on small manufacturing enterprises interested in growth. For these businesses, an important source of competitive advantage is the ability to remain flexible and responsive to the business environment (Barringer et al. 1998). While this adaptability is beneficial during transition periods, small businesses are more challenged than large companies by resource constraints such as access to financial capital, and technical or managerial skills, which often significantly reduce the number and type of options available to management (Hodgetts and Kuratko 2001; Iacovou et al. 1995).
Small businesses are typically characterized by a flat organizational hierarchy and close proximity to coworkers, which is believed to contribute to effective communication practices, often comprised of informal channels (Vinten 1999), and typically carried out face-to-face as the need arises rather than through regularly scheduled meetings, formalized status reports, or structured briefings. These channels are considered a significant benefit of the small business environment, providing superior operational flexibility (Wickert and Herschel 2001) and responsiveness (Montazemi 1988). These communication practices allow the small business manager to understand very well what is going on within the firm.
This awareness is threatened, however, during small business growth as changes in organizational structures, such as levels of organizational complexity, formalization, and centralization (Churchill and Lewis 1983; Scott and Bruce 1987), break down existing ways of working. Further, as growth occurs, managerial capacity constraints (Jensen and Meckling 1976; Oi 1983) imply that existing behaviors are further reduced in frequency as new behaviors are adopted to manage the growing firm. As small businesses undergo these changes, a differentiating factor between successful and unsuccessful firms is that successful firms act in "anticipation of bigness" (Hambrick and Crozier 1985). These firms proactively lay the foundation for the bigger enterprise before growth occurs, thereby preempting avoidable barriers to growth such as reactive management.
Growth stage theories provide a measure of predictability regarding what to expect in anticipation of getting bigger (Churchill and Lewis 1983; Scott and Bruce 1987). However, while there is significant literature on the stages of growth theory, it is focused at the firm level of analysis and describes characteristics (particularly in relation to complexity, formalization, and centralization) that are likely to be present at a certain growth stage. There is little literature that describes the evolution of these characteristics or managerial actions at the start of a growth phase, and particularly so at the level of the individual or management team. This is surprising as it is well-accepted that as a result of growth, managers become removed from business operations, which creates a broad set of difficulties in areas of communication, coordination, and control (Churchill and Lewis 1983; Greiner 1972; Olson and Terpstra 1992). The dynamic process by which these problems arise seems to be under-studied. As growth occurs, the management team become less involved with daily matters and begins to receive information indirectly from many sources. As organizational complexity and formalization increases, informal communication practices may no longer provide the necessary level of managerial information (Bavelas 1951; Leavitt 1962). Therefore, we would anticipate that an outcome of small business growth would be that management's communication behaviors will change and that business outcomes will be affected by the degree to which these changes constrain or facilitate the availability of requisite information for decision-making purposes.
While stage models have been criticized as atheoretical and simplistic (e.g., Stubbart and Smalley 1999), they are useful in understanding the organizational aspects of what should change in a business. However, they are ineffective in answering our research questions, which concentrate on why and how things change. As this study is focused on the start of a growth period, after initiation but before success can be determined, growth stage models would identify the position at which we sit, the expected characteristics, perhaps the characteristics of the next plateau, but unfortunately little else.
So, while our investigation is informed by growth stage theories, punctuated equilibrium theory (e.g., Gersick 1991) is a more appropriate frame for the type of small business growth under investigation. Newman and Robey (1992) proposed that PET may be a useful perspective for modeling the development of IS within organizations. As well, Sabherwal et al. (2001) used PET to investigate the relationship between strategic business and IS alignment. Drawing upon case studies of three large organizations, they found that the evolution of an organization's IS, including sustained periods of misalignment, could be analyzed using a PET lens. As mentioned earlier, an organization's IS can be seen as a deep structure, decisions to change corporate strategy as punctuations, and changes over time as responses to regain equilibrium within the organization. This study follows Sabherwal et al. in viewing a change in business strategy as a punctuation.
Small Business and IS
While small businesses have been traditionally seen as reluctant to invest in IS (Lees and Lees 1987), evidence over the past decade shows an increase in the awareness and management of IS in small businesses by owners and managers (e.g., Ballantine et al. 1998; Bergeron et al. 2001; Hussin et al. 2002). IS research has considered a variety of these situations. First, technology adoption problems have been investigated wherein factors such as the role of the president/CEO (Cragg and King 1993; Thong 1999; Winston and Dologite 2002), perceived usefulness or relative advantage (Cragg and King 1993; Thong 1999), and ease of use (Iacovou et al. 1995; Thong 1999) were identified. Similarly, Harrison et al. (1997) used the theory of planned behavior to explain the actions of small business executives with respect to IS decisions. Implementation has also been investigated. The small business owner's attitude toward IS is understood to be an important factor in determining implementation success (Winston and Dologite 2002). Training and on-going user support are other post-implementation issues of importance (Igbaria et al. 1998; Zinatelli et al. 1996).
An important common theme in this research often conflates the president's role as business executive and decision maker with his role as an individual user, which is reasonable given the president's central role in making organizational adoption decisions. In general, understanding the individual roles of managers is considered pivotal to understanding the way in which IS is adopted and implemented in small businesses.
Internal Transparency
In general, IS researchers have found results consistent with those from other management fields that show the owner and managers of a small business as being intimately involved in the daily operations of the small business, gathering and acting on information first-hand. A measurable result of the management team's communication process should then be the degree to which management personally understands what is going on throughout the enterprise. While many authors discuss such outcomes without specifically defining an outcome measure (arguing more is better), there is a consistent theme in several literatures that supports a construct called internal transparency.
Two different types of transparency can be defined: internal and external. External transparency corresponds to the outcome of communication behaviors directed outside the organization. For example, within the accounting and finance literature, transparency is considered as the observability of transactions, for both investment (e.g., Phillips et al. 2002) and regulatory (e.g., Vishwanath and Kaufmann 2002) purposes. Similarly, from the supply chain management perspective, information exchange between supply chain partners (e.g., Lamming et al. 2001) is described as a type of transparency. Within the marketing literature, information flow from the customer is seen to be valuable (e.g., Narver and Slater 1990). Further, the positive role of IS in increasing transparency has also been highlighted (Day and Wensley 1988; Min et al. 2002).
Internal transparency corresponds to these behaviors but is applied within the organization (e.g., Alavi and Leidner 1999). In the organizational behavior literature, it is also considered an outcome of communication behaviors. One example is when supervisors hold frequent meetings to share information with subordinates to disseminate requisite information to meet individual, team, and organizational goals (Beech and Crane 1999). Communication behaviors can also decrease transparency. Failures to share information through practices such as screening out often lower the ability of decision makers to make decisions (Pfeffer and Salancik 1978). Operations management researchers have found similar results with respect to work teams (e.g., Ang et al. 2000; Forza 1995).
The IS literature expands on the role of IS in creating transparency, while frequently not conceptualizing the outcome. IS are used to enable information sharing between individuals (Alavi and Leidner 1999) and organizations (Braunstein 1999). Technology is also credited with helping to keep information up-to-date, fresh, and dynamic (Schwartz and Te'eni 2000). In this perspective, IS are seen as an enabler of transparency.
A conceptual definition of transparency can be constructed by comparing the similarities and differences within this literature. First, transparency is regarded as an outcome measure of communication behaviors (Ang et al. 2000; Beech and Crane 1999). Second, transparency is also seen as an outcome of an exchange process between two or more entities (Alavi and Leidner 2001; Lamming et al. 2001). From this, we define internal transparency to be an outcome of communication behaviors within an organization that reflects the degree to which employees have access to the information requisite for their responsibilities. An important enabler of the communication behaviors is an organization's technology-based IS, as several literatures recognize the important enabling role of IS in increasing transparency (Alavi and Leidner 2001; Min et al. 2002).
Commonalities throughout the literature allow us to consider how to operationalize internal transparency. First, transparency is normally considered as an ordinal measure exhibiting signs of less and more (Forza 1995; Narver and...
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