Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SME’s IN KENYA

download Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SME’s IN KENYA

of 81

Transcript of Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SME’s IN KENYA

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    1/81

    THE LINK BETWEEN MANAGER INNOVATIVENESS

    AND ADOPTION OF ICT BY SMEs IN KENYA

    Muyoyo, J. L.

    Faculty of Information Science and Technology,

    Multimedia University, Nairobi, KENYA

    e-mail: [email protected]

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    2/81

    Abstract

    This paper reports an empirical investigation into the link between Managers innovativeness and adoption

    of ICT by SMEs in Kenya. ICT artefacts may enhance the social economic role of SMEs in developing

    countries. Whereas a possibility of a link between ICT adoption and SME managers innovativeness exists,

    no empirical studies have explored this link in the context of developing economies. To fill this gap, a 180

    owner managers were surveyed for their opinion on the influence 13 ICT adoption predictors. Stepwise

    multiple regression results ranked managers innovativeness as the best predictor of ICT adoption among

    SMEs. The size of an SME, ease of credit acquisition and unintended social consequences of ICT adoption

    were other predictors. Interestingly, the empirical results show that previous findings that ICT knowledge

    and formal education, structure of the firm, the state of economy and ICT infrastructure, supplier, customer

    and competitor pressure were not regarded as predictors of ICT adoption by SME owners managers. This is

    reflective of reduced concerns about cost of ICT artefacts, improved connectivity at competitive costs and

    the basic ICT applications by SMEs owner managers. A key contribution of the work is the novel use of

    regression models to enhance our understanding of ICT adoption decisions by owner managers of SME.

    Further, the work provides a clear link between the intangible resource, innovativeness and the uptake of

    ICT. This link can be exploited by stakeholders, such as universities, governmental and non governmental

    agencies that seek to enhance the social economic role of SMEs in developing countries.

    Keywords

    Manager Innovativeness, ICT, SMEs, Kenya

    2

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    3/81

    1 INTRODUCTION AND RESEARCH OBJECTIVES

    This paper investigates the possibility of a link between managers innovativeness and use of Information

    and Communication Technologies (ICT) by Small and Medium Enterprises (SMEs) in a developing world

    context. This possibility could enhance the economic role of SMEs given that they provide the largest

    opportunity for employment and wealth creation in both developed and developing countries. Their

    enormous potential form the adoption of ICT by SMEs is evident from statistics showing that 50-70% of

    jobs in developing countries, 72% in Japan and 66% in the European Union (EU) are created by SMEs

    (Luetkenhorst (2004). In a country like Kenya SMEs are both socially and economically vital, employing

    over 5.1 million people and accounted for 18% of the GDP (IFC 2006). The potential which exists

    objective of this paper is to enhance our understanding of the factors that may enhance the is paper reports

    finding of an empirical investigation into the possibility of a link between manager innovativeness and ICT

    adoption by SMEs of this paper is to report It is against this background that it may be important to

    enhance our understanding of the possible link between managers innovativeness and adoption of ICT as a

    way of enhancing their economic and social role in Kenya.

    ICT usage can transform them and enhance their levels of efficiency, competitiveness, and profitability

    (Laudon and Laudon, 2000). This would make them able to generate more employment and compete

    effectively in a global, knowledge and information based environment owing to their inherent nature as

    small firms (Luetkenhorst, 2004). According to Luetkenhorst (2004) SMEs have such as flexibility, speed

    of decision-making and proximity to customers that endear them as compared to large firms.

    3

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    4/81

    Studies undertaken in other countries suggest that the innovative adoption of ICT can enhance the

    economic role of SMEs and enable them to gain in several ways (OECD 2002). First, ICT can

    improve their information and knowledge management and subsequently reduce transaction costs,

    increase speed and reliability for both business-to-business and business-to-customer transactions.

    Second, ICT can provide effective tools for improving external communications and quality of

    services offered to established and new customers. Third, internal communications within the firm

    may be faster and lead to efficient management of firms resources. For instance, seamless transfer of

    information through shared electronic files and network computers is likely to increase the efficiency

    of business processes such as organizing incoming orders and preparing invoices.

    In particular, applications such as knowledge management systems and enterprise resource planning, allow

    firms to store, share and use their acquired knowledge and know-how. These applications have a lot

    of potential for internal communication and are more significant at the inter-firm level, being capable

    of reducing cost and increasing the speed and reliability of inter-firm level transactions (Moodley et.

    al. 2003).

    According to Moodley et. al., Internet-based B-2-B interactions can reduce information asymmetries

    between buyers and suppliers and build closer relationships among trading partners. Furthermore,

    adopting ICT innovations such as e-commerce tend to reduce transaction costs, increase transaction

    speed and reliability, thereby extracting maximum value from transactions (OECD, 2002).

    To take advantage of these inherent features SMEs have to use ICT for innovations that benefit consumers,

    for them to become more productive and create employment opportunities.

    While the use of ICT promises to enhance the role of SMEs in economic development, it is not known

    whether the SMEs operating in the Kenyan environment have adopted ICTs and what influences their

    decision to adoption ICTs.

    4

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    5/81

    STATEMENT OF THE PROBLEM

    SMEs are a major player in the global economy and an essential source of employment, innovation,

    entrepreneurship and growth (IFC, 2006). While it is acknowledged that adoption of ICTs has the potential

    to enhance this role (Yap, Thong and Raman, 1995) it is only recently that serious research interest has

    been shown on the relationship between SMEs and ICT (European Commission, 2005; Iacovou et al.

    1995).

    Despite the potential of ICT to enhance the developmental role of SMEs not much is known about the

    factors that may enhance or inhibit their adoption. However, investigation of ICT adoption by SMEs is

    extensive in south East Asia and Australia, where incidentally SMEs are quite successful in deploying ICTs

    that support e-business and e-commerce (Fink 1998; Gover and Goslar 1993; Herbert and Benbasat 1994;

    Julien and Raymond 1994; Thong and Yap 1995; Lawrence and Keen 1996; Raymond, 1990).

    The literature identifies CEO/Owner characteristics, business characteristics and environmental factors as

    possible influences on ICT adoption by Kenyan SMEs. However, since the findings are obtained in

    different contexts they may not be generalisable to SMEs in Kenya. As pointed out by Gover and Goslar

    (1993) it may be argued that because the adoption of ICT is influenced by contextual factors a need exists

    to consider the influence of firm specific factors, managers characteristics and Kenyas unique social-

    economic environment on SMEs adoption of ICT. To address this gap, this study will establish the extent

    of adoption and the significance of various influences on the adoption of ICTs by SMEs in Kenya.

    OBJECTIVES OF THE STUDY

    The purpose of the study was to examine the adoption of ICT by SMEs in Kenya. The objectives of the

    study are:

    i) To determine the extent of ICT adoption by SMEs in Kenya

    ii) To determine to link between owner manager innovativeness and ICT adoption by SMEs

    5

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    6/81

    RESEARCH QUESTIONS

    This research was guided by the following questions:

    i) To what extent have SMEs adopted the use of ICT in Kenya?

    ii) To what extent is owner or manager innovativeness significant to SMEs ICT adoption decisions

    SIGNIFICANCE OF THE STUDY

    The study is significant for several reasons: Firstly, the findings will be useful to management of SMEs in

    identifying the most significant internal and external factors inhibiting or enhancing the adoption of ICT.

    By incorporating the findings in their strategic plans, SMEs may improve their efficiency and effectiveness

    and thereby compete favourably against larger businesses.

    Secondly, governmental and non-governmental (NGOs) agencies interested in enhancing the economic role

    of SMEs will find the results important in assisting SMEs to exploit the power of ICTs. The government

    will find the results useful in providing an enabling policy framework on the use of ICT by SMEs. NGOs

    that seek to improve performance of SMEs will find the results important in the design of effective

    intervention strategies.

    Therefore, with additional insight into the status and influence of owner or manager characteristics, firm

    characteristics, and the external environments, governmental and non governmental organizations will be

    better placed to ensure meaningful economic contribution from SMEs.

    Finally, the focus on internal and external factors will enable future scholars to ascertain which specific

    influences to investigate in their search for a better understanding of how ICT can enhance the economic

    role of SMEs. The study will add to the growing body of literature on the adoption of ICT by SMEs in the

    developing world.

    6

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    7/81

    LIMITATIONS OF THE STUDY

    The current study focuses on establishing the status of and factors explaining the level of ICT adoption by

    SMEs. Although adoption is a multistage decision making process (Rogers, 1995) owing to its exploratory

    nature, it does not seek to examine the process of adoption. Further, while adoption studies seek to explore

    the diffusion in use of the adopted artifacts, the current study treats adoption and diffusion as one

    phenomenon, and does not distinguish it from diffusion. Thus it regards a decision to adopt an innovation

    as implying that the adopting unit would fully utilize it in its operations.

    Consequently, it explores the extent of adoption by surveying the technologies in use and the perceived

    importance of internal and external factors on the decision by SMEs to adopt ICT artifacts. This work

    limits itself to the influence of owner/managers, firm characteristics and its external environment.

    It does not focus on other internal influences such as the owner/managers computer literacy, the impact of

    ICT skills and training, age of the firm, and external factors like customers influences and perceived level

    of governmental support on the adoption decision.

    Finally, the study was based on SMEs that operate in Nairobi and its environs owing to logistic and time

    constraints. However, since over 60% of the countrys GDP is generated in Nairobi and its environs, it may

    be assumed that factors influencing SMEs ICT adoption are reflective of the broader case in Kenya.

    SUMMARY

    The importance of ICT for SMEs role in economic development It argued for the need to understand the

    influence of internal and external factors on the adoption of ICT.

    7

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    8/81

    2 THEORETICAL BACKGROUND AND INFORMING LITERATURE

    This section reviews literature pertinent to the study. First, it outlines the theoretical framework that

    explains the adoption of key ICT innovations that support Electronic Data Interchange (EDI), E-Commerce

    (EC), E-Business (EB), Supplier Chain Management (SCM), and Customer Relationship Management

    (CRM) by SMEs. Next, empirical literature on the internal and external factors influencing ICT adoption in

    SMEs is reviewed. The literature is then distilled into a conceptual framework that guides the rest of the

    study.

    Theoretical Framework

    An innovation is defined as an idea, practice, or object that is perceived as new by an individual or other

    unit of adoption (Rogers, 1995). Innovativeness is the extent to which an individual or other unit of

    adoption is relatively more eager in adopting new ideas than the other members of a system (Rogers, 1995).

    Adoption is the decision to make full use of an innovation as the best course of action available, while

    rejection is the decision not to adopt an innovation (Rogers, 1995).

    Since ICTs are new to SMEs, they are innovations whose diffusion can be studied using the diffusion of

    innovation framework. Diffusion studies focus on how innovations spread among members of a social

    system and why some innovations spread more rapidly than others (Rogers, 1995).

    In this study, the term ICTs will be used to mean all the digital technologies that support SMEs internal

    information production and communication and include the computing and networking technologies that

    support potentially transforming ICT innovations of EDI, e-Commerce, e-Business, SCM and CRM.

    A number of theoretical models on diffusion of innovation exist (Dooley, 1999; Hall, Wallace, et.al. 1973;

    Rogers, 1995). According to Abou-Dagga and Huba (1997), the most commonly cited model is Rogers

    (1995). The work provides a valuable theoretical framework for understanding factors that facilitate or

    impede the adoption of an innovation in an organization.

    8

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    9/81

    Diffusion of Innovation (DOI) Theory

    According to Rogers DOI (1995), as information about a new innovation permeates a

    social system, its members form perceptions about adopting it based on their

    knowledge of the innovation and its attributes. Rogers (1995) theory proposes that

    innovation attributes collectively seek to explain the adoption process and the rate at

    which adoption occurs across members of a social system.

    The first attribute of an innovation is its relative economic or social advantage. An

    innovation has a higher relative advantage if it offers more economic benefits such

    as an increase in money or wealth, saves times, or makes work easier than the

    innovation it seeks to replace.

    An innovation has a relative social advantage if it confers a higher social status than

    using the innovation it precedes (Rogers, 1995). In relation to this study, if SMEs

    perceive ICTs as offering them an opportunity to be more competitive, then they

    would have a relative advantage compared to preceding innovations.

    The second innovation characteristic is compatibility. This refers to the degree to

    which an innovation is consistent with existing values, practices, and experiences of

    the adopters (Rogers, 1995). The DOI theory states that a compatible innovation is

    adopted faster because it fills a felt or unfelt need that is within the adopters

    existing norms.

    The third characteristic is complexity. It refers to whether an innovation is relatively

    difficult to understand or use. According to DOI theory, an innovation that is relatively

    simple is adopted much faster. Aspects of an innovation that either worsen or

    eliminate complexity include the manner or format in which it is presented to

    9

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    10/81

    potential adopters. If ICTs are widely available and considered to be easy to use, then

    they would have low complexity and hence be adopted faster.

    The fourth characteristic is trialability. This refers to the degree to which an

    innovation may be experimented with on a limited scale prior to adoption. An

    innovation that lends itself to trials is adopted much faster (Rogers, 1995).

    Trialability involves providing samples of the innovation for use, or its trial over

    specific periods of time. Accordingly, in this study, ICTs would be considered to have

    high trialability if SMEs can access ICTs and experiment with them.

    The fifth characteristic is observability. This refers to the degree to which the results

    of adopting an innovation are visible to others. The higher the observability of an

    innovation, the more likely it is that the results of its adoption are obvious to the

    adopter and others in the social system (Rogers, 1995). The DOI theory, in addition to

    explaining the influence of innovation characteristic on the decision to adopt an

    innovation also explains the adoption decision process.

    The second aspect of DOI theory is the innovation-decision process. This is the

    communication cycle that members of a social system follow as they confer with

    other members of their community, analyse available information and try to reach an

    agreement and make the decision to adopt or reject an innovation.

    The innovation-decision process has five distinct stages of knowledge, persuasion,

    decision, implementation and confirmation. At the knowledge stage, one acquires or

    learns of the existence of the innovation and gains an understanding of its function.

    At the persuasion stage, one forms a favourable or unfavourable opinion or attitude

    about the innovation. At the decision stage, one engages in activities that lead to a

    determination to adopt or reject the innovation. This is followed by the

    10

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    11/81

    implementation stage, where one puts an innovation to use. Finally, one undergoes

    the confirmation stage, during which favourable or unfavourable opinions formed at

    the decision stage are reinforced or changed.

    The third aspect of DOI theory is adopter categories. This aspect describes relates to

    the innovativeness of members of a social system. Innovativeness is defined as the

    degree to which an individual or other unit of adoption is relatively earlier in adopting

    new ideas than other member of a system (Rogers, 1995). Rogers describes the

    innovativeness of members of the social system in five adopter categorizes of

    innovators, early adopters, early majority, late majority, and laggards.

    This aspect of Rogers theory suggests that differences in the personal characteristics

    and the innovativeness of members of the social system affect the rates of adoption.

    Rogers (1995) proposes that the members of the five adopter categories are

    normally distributed when plotted on a graph over time. This forms an S shaped

    curve of the rate of adoption by the members of the social system over time.

    Innovators form the first 2.5%, early adopters, form the next 13.5%, early majority

    forms the next 34%. Late majority who form the next 34% and laggards form the last

    16% of people in the social system.

    In the current section, we outlined Rogers Diffusion of Innovation (DOI) model. In the next

    section we explore the convergence of computing and communications technologies and the resulting ICT

    innovations that promise to transform SMEs. Empirical literature on factors affecting ICT adoption is

    explored, from an SMEs internal and external environments point of view.

    11

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    12/81

    ICT Applications in SMEs

    Section 2.3.1 explores the meaning and evolution of ICTs while section 2.3.2 examines the ICT

    applications resulting from the convergence of information and telecommunications technologies.

    Evolution of ICTs

    The current ICTs have evolved from those that supported mainframe and standalone computers to

    networked systems. Initially computer technologies were used to produce information. However, today

    they are involved in its communication over networks.

    The term ICT has evolved from the term IT. The convergence of computing and communication

    technologies have led to a whole range of applications that promise to enable SMEs compete on equal

    footing with large firms. IT has been defined variously as the technologies that enable computer based

    information systems (Laudon and Laudon, 2000) and the collection of computer systems used by an

    12rganization (Turban et. Al. 2002). According to Boar (1997) IT are the technologies engaged in the

    operation, collection, transport, retrieving storage, access presentation, and transformation of information in

    all its forms.

    For this study, the term IT would be defined as all the technology that is used by an organization to collect,

    process, and disseminate information in all its form. These include hardware, software and

    telecommunication devices.

    The term ICT, which refers to the convergence of computing and telecommunications technologies

    (Laudon and Laudon, 2000), is preferred because it captures the innovative use of these technologies that

    promise to make SMEs as competitive as large firms. It is acknowledged that adding a communications

    channel, such as the Internets, intranets, extranets or other information services, significantly extends the

    capability of the computer (Laudon and Laudon, 2000). It allows it to be not only an inexpensive

    communications device but also facilitate interoperation of firms (Laudon and Laudon, 2000). As it is

    12

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    13/81

    today, ICTs have the potential for information and innovative knowledge search and production, and of

    SMEs working with others firms irrespective of geographical barriers.

    ICT Innovations for SMEs

    The ICTs that enable innovative applications are often configured in various ways by SMEs. The literature

    on ICT adoption by SMEs reports their use of ICTs that enable SCM, CRM, ERP, KWS, e-business and e-

    commerce (Adams et. Al. 1992).

    E-mail facilitates written information exchange, storage and enables users to send graphical and multimedia

    information as an attachment to the body. Also it is known for its capability to enable asynchronous

    communication (Adams et al. 1992; Markus, 1994). Within SMEs, email has been used quite extensively

    for communication (Sillince et. Al. 1998). The reason for SMEs to use email is usually to replace facsimile

    and reduce communication costs (Sillince et al. 1998).

    Facsimile communication, especially international facsimile transmission, is quite expensive and not of

    adequate quality for design purposes, where graphical documents are being transmitted. Email remains the

    most widely used ICT artifact for networked communications.

    ICT systems that exploit intranets, client extranets and supplier extranets to re-integrate internal and

    external communications along the supply chain are the latest in a line of ICT adoptions. The adoption of

    intranets and extranets involve major organisational innovation (Windrum et.al. 2002). Intranets alter the

    flows and content of internal communications, while extranets alter communications between the firm and

    its clients and suppliers. When exploited successfully, these investments may improve SME

    competitiveness by either increasing the efficiency of internal and external communication and

    organization or by facilitating new or improved products and services.

    ICTs facilitating EDI interconnect firms through a global computer network, principally the Internet, to

    facilitate computer-to computer exchange of electronic documents, such as purchase orders, advance

    13

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    14/81

    shipment notices and invoices, without human intervention or human-readable documents. This innovative

    use of ICT eliminates manual re-keying of data, cuts order processing costs, increases data accuracy,

    improves cycle time, and makes just-in-time deliveries possible. Like the Internet, it is a standards-based

    system independent of the type of computer hardware and software employed (Wikipedia, 2009).

    ICTs that support e-commerce facilitate the buying and selling of products and services electronically.

    Chong (2004) adds that e-Commerce focuses on the use of ICT to enable the external activities and

    relationships of the business with individuals, groups and other businesses. This has resulted into growth in

    the amount of trade conducted electronically. E-commerce draws on ICT innovations in electronic funds

    transfer (EFT), SCM, Internet marketing, online transaction processing, inventory management systems

    and automated data collection systems.

    The adoption of ICT innovations that support e-business, e-commerce m-Business, and m-Commerce is

    seen as a way of enhancing the contribution of SMEs and their competitiveness in a global environment. It

    has been suggested that the adoption of ICT can enhance SMEs potential to generate employment and to

    compete effectively against large firms, in a global, knowledge and information based environment

    (Luetkenhorst, 2004).

    Economic Contribution of SMEs

    The literature suggests that the economic significance of SMEs arise from their very characteristics (Thong

    and Yap, 1996). SMEs have a small management team, strong owner influence, limited resources,

    centralized power and control, lack of specialist staff, multifunctional management, limited market share,

    low employee turnover, reluctance to take risks, and avoidance of sophisticated software or applications

    (MacGregor, Bunker and Waugh, 1998; Yap, Soh and Raman, 1992).

    Definition of SMEs

    SMEs are a heterogeneous and complex mix of economically active units (Martin and Matlay, 2001). They

    are small firms that are independent, owner managed, and have a small market share. The statistical

    14

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    15/81

    definition of SMEs based on the size of the firm, as evident from the number of employees is common in

    SME literature. The European Commission (2004) defines SMEs as non-subsidiary, independent firms

    which employ less than a given number of employees. This number varies across national statistical

    systems. In the European Union it is 250 employees while in some countries it is 200 employees. However,

    the United States consider SMEs to include firms with fewer than 500 employees.

    For the purposes of the current work, small firms are defined as those with fewer than 50 employees.

    Further, micro-enterprises have at most ten workers. Following the EU definition, this study considers

    SMEs as those organizations that have 250 employees and below. From an economic perspective, this

    definition is considered appropriate since Kenya and EU countries are both Organization for Economic

    Cooperation and Development (OECD) countries.

    Economic Role of SMEs

    As larger firms downsize and outsource more functions the role of SMEs in the global economy is

    increasing (Johnson, 2005). For instance in the OECD countries 95% of enterprises are SMEs, and they

    account for 60% to 70% of employment (OECD, 2002).

    The economic significance of SMEs derives from the observation that most SME jobs are in the service

    sector. This sector accounts for two thirds of economic activity and employment in OECD countries

    (OECD, 2002). The key sectors in which SMEs create employment include wholesale and retail trade, the

    hotel and restaurant business, communications and business services, and construction. Further, SMEs also

    account for a high percentage of manufacturing firms in many OECD countries and provide at least half of

    OECD manufacturing employment (OECD, 2002).

    SMEs also create jobs in technology-intensive industries such as ICT and biotechnology. They offer

    services relating to computer software and information processing, research and development, marketing,

    business organization and human resource development. Windrum et.al. (2002) explains that increased

    outsourcing by major manufacturing firms, combined with new technologies has allowed SMEs to win

    market niches, and has led to 10% annual growth in these knowledge-based services in recent years.

    15

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    16/81

    It has been further suggested that in addition to employment generation SMEs influence growth in

    productivity and the economy, through the competition inherent in the birth, death, entry and exit of smaller

    firms. For instance, according to Johnson (2005) less than one-half of small start-ups survive for more than

    five years and only a fraction develop into the core group of high-performance firms which drive industrial

    innovation and performance.

    Thus it may be argued that if governments provide an enabling environment for SMEs to play this

    additional role through ICT policy reforms that facilitate employment creation and growth, then the impact

    may be felt in a wide range of sectors represented by SMEs.

    An important source of SMEs economic contribution is their innovativeness. For instance, some 30% to

    60% of SMEs in the OECD countries are characterized as innovative in the broad sense

    (OECD, 2002). While, on average, they are less likely to conduct research and development

    (R & D) than larger firms, they are more likely to innovate through creating or re-

    engineering products or services to meet new market demands, introducing new

    organizational approaches to enhance productivity, or developing new techniques to expand

    sales.

    There is a subset of high-growth small firms, which are exceptional innovators. These SMEs are located in

    the top 5%-10% of all growing firms (OECD, 2002). In most countries, where their job

    creation rates exceed those of larger companies, SMEs tend to be technology- based and

    conduct Research and Development.

    It can be argued that their economic role depends on the use of ICT. However the literature seems to

    suggest that their ability to exploit ICTs innovations, which can enable them to compete with large firms at

    a global level depends on managers and organizational characteristics and general and specific external

    factors.

    16

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    17/81

    Empirical Literature on Factors Influencing Adoption of ICT by SMEs

    Parker and Castleman (2007) concluded, after an extensive analysis of literature of ICT adoption, that

    factors influencing adoption can be categorised as environmental, technological, organisational and owner

    characteristics.

    The literature considers environmental factors to include pressure from competitors, customer or suppliers,

    vendor support and government support or regulations, while technological factors relate to ICT

    complexity, cost and compatibility. On the other hand, organisational factors include size, staff knowledge

    of ICT supporting E-Business, industry or product/service type, and owner characteristics include

    education, attitude toward technology, innovativeness and knowledge of ICT supporting E-Business (Al-

    Qirim, 2005; Ching and Ellis 2004; Chong 2004; Premkumar 2003 and Wymer and Regan, 2005).

    Previous research has revealed conflicting support for the significance of these factors. For example, some

    surveys investigating barriers found that competitor pressure was positively correlated with adoption of

    ICTs that support E-Business (Wymer and Regan 2005) while others found this factor to be insignificant

    (Al-Qirim 2004; Gemino, Mackay and Reich 2006). Other surveys found financial constraints to be a

    significant factor (Wymer and Regan 2005), although others did not find this factor to be influential (Al-

    Qirim 2005; Grandon and Pearson 2004).

    The objective of the current study is to examine the strength of each factor in explaining small firm

    adoption decisions and the relationship between the factors. To examine the relative influence of the

    various factors that determine SMEs adoption of ICTs, the current study categorized them into internal and

    external factors. Similar categorisation has been used in previous work (Lakhanpal, 1994; Yap, 1986;

    1990).

    Lakhanpal (1994), Yap (1986; 1990) suggest that the adoption of ICT by SMEs result from factors beyond

    and within their control such as firm specific customer, supplier and competitor influences, and generic

    economic, technological, political and social environmental influences.

    17

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    18/81

    According to Lakhanpal (1994) these environmental factors are external factors, being factors outside the

    control of organizations and business owners. Yap (1986; 1990) further categorises external factors into

    general and specific factors. General factors include social, economic, legal and cultural factors and

    specific external factors include customers, suppliers and competitors.

    Internal Factors

    Previous studies suggest that factors influencing use of various ICTs in SMEs can be either controllable or

    not controllable by the SME. Internal factors, over which the SME has control, include manager /CEO

    characteristics and business characteristics. These contrast factors which may have no influence over

    factors such as social-political and economic environment or on competitors, suppliers and customers.

    Owner / Manager Characteristics

    In most firms the owner provides the SME with capital while themanager is responsible for managerial

    functions of planning, organizing, executing, and controlling (Stoner, 1994). Within most SMEs, the same

    person often assumes the role of owner and manager and for purposes of this work it is assumed that the

    owner is also the manager.

    The characteristics of the owner manager have been reported to influence the adoption of ICT by small

    firms since the owner is the principal decision maker (Burke 2005; Ching and Ellis, 2004). The

    characteristics often cited in literature include age, educational level (Burke 2005; Ching and Ellis 2004;

    Fillis, Johansson and Wagner 2003), gender (Fillis, Johansson and Wagner 2003), management experience

    (Burke 2005), attitude toward change, degree of determination or drive and attitude toward or

    determination to gain new skills and knowledge (Fillis, Johansson and Wagner 2003).

    In addition to owner characteristics, other qualities that may influence the uptake of ICT include degree of

    cosmopolitism or tendency to be outward-looking (Ching and Ellis 2004). It is argued that, if high, it might

    result in market-oriented activities such as gathering competitor and customer information to inform

    18

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    19/81

    strategy (Jones, Hecker and Holland 2003). Further, innovativeness, creativity and attitude toward risk also

    influences the decision (Al-Qirim 2005; Fillis, Johansson and Wagner 2003; Wymer and Regan 2005).

    Piscitello and Sgobbi (2004) explain that if an owner is more conservative then the owner is more likely to

    maintain the status quo.

    Finally, industry experience and knowledge may influence the adoption of ICT by an SME (Alexander,

    Pearson and Crosby 2003; Dholakia and Kshetri 2004). Together, the experience, innovativeness,

    creativity, and personal characteristics all serve to influence the process of deciding on adoption of ICT by

    the SME. This process is based on a mix of rational and non rational or strategic considerations that

    involves significant input from the owner/manager.

    It is argued that since the owner/manager needs to allocate the resources and devote significant time and

    effort to manage the ICT adoption process, the success of the adoption depends on his/her support (Cragg

    and King 1993; Fink 2002; Lanz 2002; Mehrtens et. Al. 2001; Mirchandani and Motwani 2001). This

    support comes in the form of their knowledge of IT and the perception of the benefit obtained from using

    ICT (Attewell 1992; Chesher and Skok. 2000; Cragg and King 1993). Poon and Swatman (1997) agree and

    point out that managerial perception of ICT benefits and commitment and are key features in the process of

    ICT adoption and implementation.

    On the other hand, limited knowledge of ICT could be a barrier in adopting ICT. Owner/manager of the

    SME might be confused with the various choice and rapid development of ICT (Venkatesh and Brown,

    2001). Adequate knowledge of ICT adoption and its associated impact toward 19rganization might also

    discourage owner/manager (Agarwal and Prasad 2000; Love et. Al., 2001).

    Other than IT knowledge, the general level of education has been reported as a key influence on ICT

    adoption studies. For instance it was found that the decision to network was associated with the level of

    education of the CEO (Donckels and Lambrecht, 1997). Also, educational level of the CEO was found to

    19

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    20/81

    be significantly associated with decisions to become part of a formal networking arrangement (MacGregor

    et.al. 1998).

    Another demographic variable considered was the age of the CEO. Mazzarolet.al.

    (1999) found that the

    gender of the CEO was significantly associated with the level of adoption of ICTs supporting e-commerce.

    Research conducted by Palvia and Palvia (2000) suggest that the age and experience of the Owner/CEO is

    the single most important factor governing successful ICT adoption. In addition to age and experience of

    the owner, the findings of the study suggested that gender is a statistically significant variable. These

    studies are supported by the findings of Venkatesh et.al. (2003).

    Other than the educational background, age and the level of IT knowledge, previous studies have also

    explored the influence of manager/CEO attitudes on the adoption of ICTs. Thong and Yap (1995) point out

    that SMEs that have a CEO with a positive attitude, and who is innovative and knowledgeable about IT are

    likely to adopt new ICT.

    For instance, Matlay (2000) and Culkin and Smith (2000), suggest that how reactive or proactive an

    owner/managers is to rapid technological changes is crucial to ICT adoption and implementation.

    Collins-Dodd (1999) observes that within the context of SMEs, there is need to respond quickly to

    environment changes and organizations lacking this leadership are disadvantaged. Timely adoption of new

    technology requires making decision based on managerial skills and relevant experiences. It is

    acknowledged that the marketing of technological innovation to SME owners/managers is difficult owing

    to psychological factors such as their emotion, attitudes, behavioral intention and perceptions (Harker and

    Van Akkeren, 2002).

    They found that owner / manager psychological characteristics such as perceived benefits of PDAs,

    computer literacy, perceived control, and their mistrust of the IT industry were barriers to adoption of IT by

    SMEs. Simes (2002) agrees, noting that lack of awareness and knowledge of the benefits that PDAs can

    provide in e-commerce promotion, sales and procurement, by SME owners/managers, may explain their

    20

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    21/81

    non-adoption of the ICT artifact. Simes (2002) study indicates that lack of ICT awareness and knowledge,

    and inadequacy of ICT-capable and literate manager / workers.

    Thong and Yap (1995) concluded that small businesses that had innovative CEOs possessed more positive

    attitudes toward IT adoption. Such innovative CEOs may play an important role in applying new

    technologies to meet customer needs by introducing new products. Acs and Audretsch (1990) agree noting

    that small firms produce innovations with significantly higher productivity that are more cost-effective than

    large firms.

    In addition to owner innovativeness, attitudes, IT knowledge and level of education, the managerial culture

    as evident in their support of IT innovations may influence the use of ICT in SMEs. In large organizations

    the importance of top management support in facilitating successful ICT adoption is established (Cerveny

    and Sanders, 1986; Earl, 1996; Daft, 1998). In SMEs the support of CEOs, has been the focus since most

    small businesses are managed by an owner that also acts as the CEO.

    Additionally, within SMEs flat organizational structure, the CEO typically performs multiple roles in the

    daily running of the business, takes the majority of decisions and has full control over the organizations

    resources (Raymond and Magnenet 1982; Steinhoff and Burgess 1986).

    CEO support is therefore essential for establishing appropriate ICT goals, identifying critical business

    information needs and allocating requisite financial resources. Delone (1988) and Yap et. Al. (1992) have

    highlighted the importance of CEO support in the implementation phase. Also, dependence on the CEOs

    support to drive the adoption of internet technologies and subsequent development of e-business solutions

    has been highlighted in empirical research conducted by Igbaria et. Al. (1998) and Premkumar and Roberts

    (1999).

    Evidently, manager/CEO characteristics such as age, level of education, IT knowledge, innovativeness, and

    nurturing of an IT supporting culture may influence the adoption of ICT by SMEs.

    21

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    22/81

    In addition to owner/CEO characteristics, another set of influences, over which the SME has control are the

    business characteristics. Blackburn and McClure (1998) supports the view that owner-managers attitude,

    knowledge and experience, in addition to the overall managerial approach to the business, is often more

    influential than business size and sector in understanding the use of ICT.

    Business Characteristics

    SME characteristics such as size, sector, extent of centralization, formalization, turnover, and structural

    sophistication of the firm are potential influences of ICT adoption in SMEs (Gagnon, Sicotte, and Posada,

    2000; Zmud, 1984; Nilakanta and Scamell, 1990; Martin and Matlay, 2001). Further, Raymond and

    Magnenet (1982) have suggested that other SME characteristics, such as firms dependency on a few key

    individuals often create important challenges for ICT uptake.

    The literature acknowledges that company size is related to the probability of ICT adoption (Zmud, 1984;

    Nilakanta and Scamell, 1990). They suggest that smaller companies are less likely to adopt ICT than large

    firms which require a higher level of information and technology. Studies focusing on ICTs that supports

    E-Commerce seem to suggest that the most cited reasons for ICT adoption tend to be those based upon the

    companys size (Van Beveren and Thomson, 2002). Perhaps as is suggested, as a company grows in size, it

    becomes more difficult to communicate with customers and this leads to the adoption of E-Commerce

    (Daniel et. Al. 2002).

    Lucchetti and Sterlacchini (2004) also support the significance of size in the context of manufacturing

    firms. According to them, the adoption of production integrating ICTs depends on the firms size, the

    extent of productive linkages with other firms, the use of advanced information technologies in production

    and the educational level of the labour force.

    While ICT adoption is seen as being dependent on size, the influence of the sector in which an SME

    operates has also been reported to be significant in ICT adoption decisions. Although the work of Bodorick

    et al. (2002) did not focus specifically on SMEs it suggests that E-Commerce readiness and adoption are

    22

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    23/81

    likely to vary by industry sector. Fallon and Moran (2000) found significant links between the size of a firm

    in terms of number of employees and number of sites, and the intensity and/or level of ICT activity, but

    showed that ICT usage varies not only across sectors but also within constituent sub-sectors, perhaps due to

    size variation, measured as number of employees, turnover level or asset value.

    Those micro-businesses that specialize in the provision of business services, particularly knowledge

    intensive, service 23rganization, are more likely to adopt ICT than similar sized manufacturing firms

    (Prez-Esteve and Schuknecht 1999). Knowledge-intensive industries rank highest in their use of external

    networking technologies, such as company websites, use of external e-mail, EDI and online selling

    systems.

    Technology intensive manufacturing sectors, like chemicals, vehicle components, defense and aerospace,

    and service sectors, such as advertising, and insurance services, are significantly more likely to make

    frequent use of external networking applications than are clothing, road haulage and retail sectors

    (Spectrum/DTI, 2000).

    Martin and Matlay (2001) found that micro-businesses that focus on providing business services were more

    likely to adopt ICT than similar sized manufacturing firms. In addition to the type of sector, the lifecycle of

    an industry or its maturity is reported to have an effect on ICT usage, with usage likely to be higher in new

    sectors than in mature sectors.

    For instance Daniel and Myers (2000) found that the older the SME, the less likely they were to use E-

    Commerce. Firms in mature industries face particular challenges posed by the introduction of new

    technologies and practices that displace pre-existing technologies and practices.

    Decisions to adopt ICTs that support E-Business are also influenced by supply considerations. An

    interesting finding is a pronounced preference for for ICTs that support EDI and external e-mail in different

    sectors. Road haulage, clothing, vehicle components and insurance companies were found to strongly

    favour EDI systems whereas advertising, chemicals and defence industries have a pronounced use of e-mail

    23

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    24/81

    for external communications (Spectrum/DTI, 2000). Other firm characteristics that influence ICT adoption,

    other than size and sector, that has been the focus of ICT adoption studies relate to the structure of SMEs.

    Organizational structure and the number of employees has also been found to influence ICTs that facilitate

    E-Business (Al- Qirim 2005; Del Aguila-Obra and Padilla-Melndez 2006; Dholakia and Kshetri 2004;

    Wymer and Regan 2005).

    For example, Levenburg (2005) and Burke (2005) found that as a firms size grows, its 24rganizational

    structure and processes become more complex, in terms of job specialization, formalization, and more

    coordination of business functions and larger number of customers, which suggests that ICTs supporting E-

    Business could help solve associated business goals. Del Aguila-Obra and Padilla-Melndez (2006)

    unsurprisingly found that firms with geographically dispersed staff were also more inclined to adopt E-

    Business, because it helped solve the firms distributed communication needs.

    In addition to its structure, the firms degree of decision making centralization, which also relates to its

    hierarchical structure, also influences ICT adoption. SMEs are usually flatter organizations with more

    centralized decision processes (Gagnon, Sicotte, and Posada, 2000). Small organizations have less complex

    organisational structures than larger organisations and hence have lower internal requirements for extensive

    communication technologies. Consequently they have smaller volumes of information to be communicated

    and stored and hence they perceive less compelling need to acquire ICTs to manage information (Lange

    et.al. 2000; Mullins et.al. 2001).

    Relatively flat owner-led SME organizational structures are said to have advantages in terms of their ability

    to adapt to market changes when compared to more complicated and hierarchical structures of large

    organizations. On the other hand, large organizations are said to enjoy significant advantages in terms of

    access to financial and human capital resources (Dodgson and Rothwell, 1991; Vossen, 1998).

    24

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    25/81

    Wymer and Regan (2005) report that the most commonly cited resource constraints are cost of the

    technology and lack of applicable in-house knowledge or experience (Smallbone, North, Roper, and

    Vickers, 2003). Resources, especially financial resources, are needed to finance the adoption process (Chau

    1995; Utomo and Dodgson 2001). Since SMEs have limited financial resources, it might be difficult to

    obtain desired ICT products. Limited financial resources also forces SMEs to be very careful in selecting

    and implementing ICT.

    This limitation manifests itself in the effort of SMEs to prioritize which features of ICT solutions should be

    selected. An incorrect ICT investment decision can have significant financial consequences for SMEs and

    in extreme condition it may lead to a bankruptcy. The associated high risk of ICT investment could

    discourage some owner/manager to adopt ICT for their company (Agarwal and Prasad, 2000; Love et. Al.

    2001).

    Limited financial resources also mean that SMEs might not be able to obtain necessary external expertise

    such as consultant or additional training from the vendors (Attewell 1992; Cragg and King, 1993).

    SMEs would have to rely on the availability of government assistance or voluntary consultancy from higher

    education institutions (Utomo and Dodgson, 2001). The scale of SME operations makes them be more

    exposed to cash flow problems (Fariselli et. Al. 1999; Foong, 1999; Premkumar and Roberts, 1999).

    First, they have fewer resources for sophisticated management of financial instruments. Second, they do not

    enjoy economies of scale and market power enjoyed by large organizations. Subsequently, SMEs do not

    enjoy the preferential interest rates offered by banks to larger organisations.

    The stronger financial constraints facing smaller organizations is a key factor, it is suggested, explain why

    smaller companies tend to be more sensitive to cost and why they have longer replacement cycles. Further,

    since SMEs often operate on small margins, any technology that does not translate directly and quickly into

    a competitive advantage may not be taken up by an SME (Gagnon et al., 2000).

    25

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    26/81

    In the current study, firm specific variables considered include business size, structure, turnover,

    profitability and ease of credit acquisition. In addition to these firm specific factors, the imposition of

    conditions by larger trading partners, who tend to be more powerful due to their extensive resource base,

    have also been reported to influence the uptake of ICTs that support interoperation (Blackburn and

    Athayde, 2000).

    26

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    27/81

    External Environmental Factors

    It has been suggested that the adoption of ICT by SMEs result from factors beyond and within their

    control) such as firm specific customer, supplier and competitor influences, and generic economic,

    technological, political and social environmental influences (Lakhanpal, 1994; Yap, 1986; 1990).

    Lakhanpal (1994) refers to these environmental factors as external factors, being factors outside the control

    of organizations and business owners. Yap (1986; 1990) categorises external factors into general and

    specific factors. General factors include social, economic, legal and cultural factors and specific external

    factors include customers, suppliers and competitors.

    Firm Specific External Factors

    In the context of ICTs that support E-Commerce, it is suggested that pressure brought about by a new type

    of customer value proposition of what they want, when and how they want it and at the lowest cost has

    been identified as a key influence on ICT uptake (Kalakota and Robinson, 2001). Daniel et.al. (2000) and

    Dongen et al. (2002) found that responding to competitors was also likely to be an important driver towards

    the adoption of ICTs that support e-commerce. According to them, the overall reason for the adoption of

    ICTs supporting e-commerce by SMEs was to enhance customer relationships either through improving

    customer services, developing the brand, seeking out new customers or to allow for discourse with

    customers.

    The notion was that these businesses better understand how competitive differentiation can be achieved by

    developing superior customer relationships. Kalakota and Robinson (2001) have similar views claiming

    that through the use of ICTs that support e-commerce, companies can become the best, most recognizable

    and also the cheapest. That is, E-Commerce can create opportunities for a combination of differentiation

    and cost leadership strategies to be employed (Campbell-Hunt et.al. 2000).

    27

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    28/81

    Fink (1998) provides a summary of the external factors reported to influence ICT adoption. These include

    vendor support (Yap et.al. 1992), competitor pressure (Cragg and King, 1993) and external pressure

    (Iacovou et. Al. 1995). The literature suggests that competitors could be one of the important external

    factors considered by SMEs in ICT adoption (Cragg and King, 1993). ICT could be used as a tool to gain

    competitive advantage to allow a firm to stay ahead of or to keep pace with the competitors (Earl 1989;

    Galliers and Sutherland 1999; Turban et. Al. 2002). This suggests that ICT adoption decision would be

    influenced by the relative advantages gained by SMEs compared to their competitors and if there are no

    relative advantages gained by SMEs, IT might not be adopted.

    The pressure from suppliers is also acknowledged as a key influence by Poon (2000). Hollander et.al.

    (2000) support the view, noting that ICT can be used to support the business relations with suppliers and

    customers, for example by processing transaction more efficiently, improving response time, reducing cost

    of transaction, increasing the amount of transaction processed.

    Suppliers and customers are another factor being considered in IT adoption. However, from previous

    experience, it is unlikely that the adoption decision would be influenced by compatibility with the

    customers and suppliers systems. The decision is on what type of IT solution to adopt IT is more likely to

    improve services rather than focusing on how effectively it integrates with customers and suppliers

    systems.

    General Environmental Factors

    Johnson and Scholes (1993), Fry and Stone (1995), Hunger and Wheelen (1996), and Coulthard, Howell

    and Clarke (1996) all identify four general external factors; political, economic, social and technological. It

    may be argued from the literature that adoption of ICT by SMEs is influenced by generic environmental

    factors which are not unique to a particular SME. It is suggested that their economic, technological,

    political environments can influence their uptake of ICTs. For instance, in some countries, government and

    its agencies often provide such assistance to help SMEs in improving their business (Drew 2003; Utomo

    and Dodgson, 2001; Dutta and Evrard, 1999).

    28

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    29/81

    For example, the government might provide series of IT workshop and training for SMEs which may assist

    in the decision-making process. The government role can be either to encourage or discourage IT adoption

    depending on what kind of policy is implemented to assist SMEs. Some governments use the welfare

    model, where they hand out the assistance package directly to SMEs (Dutta and Evrard, 1999), while others

    choose to formulate policy and provide access to enabler infrastructure to allow SMEs development.

    The influence of political players is not the only external factor in ICT adoption by SMEs. They consist of

    independent and impartial consultants and IT product vendors (Chau 1995; Fink 1998; Utomo and

    Dodgson 2001). They could provide expertise regarding IT adoption for SMEs. However, SMEs need to

    consider the budget available for hiring consultants service since they usually involve considerable

    expense. A further dimension on which small firms vary, and which is recognized in the literature, relates

    to the interrelated influences of customers, suppliers, industry, competitors and products/services.

    Specific Environmental Factors

    Perceived pressure from customers and suppliers, or the degree of their E-Business readiness, can provide a

    driver for adopting ICT that support e-Business but may not guarantee adoption (Al-Qirim 2005; Beck,

    Wigand and Knig 2005; Ching and Ellis 2004; Del Aguila-Obra and Padilla-Melndez 2006; Gemino,

    Mackay and Reich 2006; Khazanchi 2005; Pflughoeft et al. 2003; Stansfield and Grant 2003; Wymer and

    Regan 2005).

    For example, Zheng et. Al. (2005) argue that some firms with a small customer base and low transaction

    volumes might find paper systems more viable than adopting ICTs that support E-Business. This would be

    especially true if the small firm does not rely upon the customer applying pressure for the majority of its

    trade. Also, some firms see face-to-face communication and associated trust with customers and suppliers

    as their primary competitive advantage over larger firms.

    Thus adoption of ICTs that support E-Business will not occur if it risks impersonalizing or even damaging

    relationships with trading partners (Beck, Wigand and Knig 2005; Castleman 2004; Piscitello and

    Sgobbi 2004; Zheng et al. 2005). For other firms, this social aspect of running the business might be more

    important than attracting new customers (Castleman, 2004), or the type of industry might mean that

    29

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    30/81

    customers are typically not loyal and are instead more price-sensitive. This suggests that small firm

    relationships with customers and suppliers vary widely between small firms, and can result in different

    business goals and associated E-Business suitability.

    The business goals of small firms are also likely to vary depending on the industry they trade within. For

    example, perceived pressure from competitors can drive E-Business adoption (Al-Qirim 2005; Beck,

    Wigand and Knig 2005; Ching and Ellis 2004; Dholakia and Kshetri 2004; Fillis, Johansson and Wagner

    2003; Kaynak, Tatoglu and Kula 2005; Pflughoeft et al. 2003; Wymer and Regan 2005), but this pressure

    varies depending on the intensity of E-Business use within the industry and on whether E-Business is the

    norm or increasing (Kaynak, Tatoglu and Kula 2005; Khazanchi 2005).

    For example, McAdam, McConvery and Armstrong (2004) found that the rural manufacturing sector in the

    UK continued with traditional methods of doing business, and therefore did not encourage the adoption of

    new, innovative practices. Fillis, Johansson and Wagner (2003) add that the extent of globalization within

    particular industries differ widely.

    Egan, Clancy and OToole (2003) found that primary businesses producing generic products for B-2-B

    markets had significantly lower usage of ICT that support E-Business compared to the other sectors. These

    variances among industries, again, will give rise to variances in small firm business goals and in the

    suitability of E-Business solutions. In addition, Coulthard, Castleman and Batten (2004) argue that many

    small firms trade across industries, which further complicates matters. Each industry the small firm trades

    within might have different expectations like business processes, government regulations, standards and

    hence non-adoption of E-Business might be the only cost effective option.

    This suggests that understanding small firm business goals, and the suitability of E-Business, requires a

    thorough understanding of the industry norms and practices which exist within a particular geographical

    location in which the firm resides. In summary, there are many permutations of customer, supplier, industry

    and product/service related issues, together with the other areas of variance discussed which might

    influence the business goals of small firms.

    30

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    31/81

    All these interrelated issues and associated business goals appear to influence whether ICT that support E-

    Business are suitable or not. Unfortunately, these ideal types have been found seriously wanting in terms of

    their ability to explain the actual competitive or innovative performance of a company, or its speed of

    technological adoption.

    The adoption of ICTs that support EDI has largely been associated with the development of tight supply

    chains that are focused around a leading company with significant market power. This leading company

    can ensure its business partners conform to its requirements. In manufacturing and retailing the

    implementation of ICTs that support EDI has commonly resulted in the development of hub-spoke EDI

    networks around the leading company (Zwass, 1996). These hub-spoke systems are limited in flexibility; it

    is very difficult to alter the connected partners, message formats and transaction procedures. Thus, the role

    of SMEs in hub-spoke systems is often marginal. In many cases they are simply embedded in a closed

    system of relationships, the conditions of entry and action being determined by their larger partners

    (Windrum and de Berringer, 2002).

    Sillinceet. Al.(1998) found that the most important issue affecting the decision by SMEs to adopt email

    was whether customers, suppliers and other organizations with which they regularly communicate also

    have e-mail. Thus, in the absence of monopolistic buyers or monopolistic sellers dominating supply chains,

    adoption decisions are affected by network externalities.

    Here, the perceived value of a network technology increases according to the number of other users who

    are currently using the same technology. This has been formalised in Metcalfes Law, which states that the

    value of a network is proportional to the number of users (Windrum and Swann, 1999).

    31

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    32/81

    General External Environment

    Economic

    Technology Political

    Social

    Specific External Pressures

    Competitors

    Customers

    Suppliers

    External Factors

    Business Characteristics

    Business Size

    Structure

    Turnover

    Profitability

    Ease of Credit

    Acquisition

    Manager Characteristics

    Innovation

    Attitude

    IT Knowledge

    Level of Education

    2.6 Conceptual Framework

    The theoretical framework and empirical literature can be distilled into a conceptual framework showing

    the interrelationships among the variables considered in this study.

    Fig. 2.1 Conceptual Framework

    The study posits that successful adoption of ICT by SMEs depend on factors that they have control and no

    control over. The framework suggests that manager characteristics such as Innovation, Attitude, IT

    knowledge, Level of Education and the firms characteristics can influence the uptake of ICT by SMEs.

    32

    SMEs ICT Adoption

    Internal Factors

    Source: Author

    Independent Variables Dependent Variable

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    33/81

    While an SME can have control over these two sets of factors, the firm has no control over Economic,

    Technological, Political, and Competitive environment. Likewise influence of Customers and Suppliers are

    likely to determine adoption but are beyond an SMEs control.

    In summary, the decision to adopt ICT is dependent on the character of the key decision making person, the

    firm and its external environment. This section explored literature pertinent to the study. It provided a

    framework that underpins the work and a review of empirical literature. Section Three presents the method

    used to obtain data required to answer the research hypotheses outlined in the current section .

    33

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    34/81

    3 METHODOLOGY

    Research Design

    The study adopted a survey design to explore the perceived extent and factors influencing the adoption of

    ICT by SMEs. This design was considered appropriate since this was an exploratory study aimed at

    describing the relationship among the dependent and independent variables. The design was chosen

    because of the need to collect structured data on the perceived influence of internal factors including

    managers innovativeness, attitude, IT knowledge, level of education and culture, and business size,

    structure and ease of credit acquisition, and external factors like economic, ICT infrastructure, political

    social influences, and competitors on SMEs adoption of ICT.

    Population

    The population of interest consisted of all private enterprises that employ less than 250 employees within

    Nairobi and its environs. These SMEs were from service and manufacturing sectors of the economy and

    included hotels, retail stores, building and construction firms, educational institutions, tours and travel

    agencies, research organizations, security companies, it firms, cooperative SACCOS, petrol stations,

    hospitals/clinics, bookshops, courier firms, transport companies and banking and insurance firms.

    The inclusion of firms in all sectors was consistent with the need to ensure that the sample selected was

    representative of the population of the SMEs in Kenya.

    Due to time and resource constraints, the study population consisted of SMEs based in Nairobi. Further,

    since the use of ICT is expected to enhance the competitiveness of SMEs it was expected that SMEs

    operating in Nairobi, which produces over 60% of the countrys GDP, would have the imperative to adopt

    ICT.

    Sampling

    The study adopted a stratified random sampling technique to select 180 SMEs for the study. The final

    sample consisted of firms in the banking and insurance, hotels, retail stores, building and construction,

    34

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    35/81

    educational institutions, tours and travel, research organisations, NGOs security firms, IT and services,

    petroleum firms, health care, bookshops, courier and transport firms. The exploratory nature of the study

    made it useful to include firms from all sectors of the economy.

    Research Instrument

    The study sought to measure the impact of Owner/CEO innovation, Owner/CEO Attitude, Owner/CEO IT

    knowledge, Organization Size and structure, the countrys economy and ICT infrastructure on Adoption of

    ICT by SMEs. It was based on a structured questionnaire that consisted of five parts. Part 1 captured the

    demographic variables, such as the nature of the business, type of business, job title, age and gender of the

    Owner/Manager. Part 2 addressed the managers ICT characteristics, such as ICT knowledge and

    utilisation. Part 3 addressed the organizational characteristics that may impact on adoption such as size of

    business and sales turnover.

    While part 2 and 3 focussed on possible internal factors, Part 4 focused on external factors, such as the

    economy, IT infrastructure, social political influences that may impact on the adoption of ICT. Part 5

    focussed on the dependent variable which was measured as the current level of ICT utilisation within the

    SME sector.

    The instrument was tested for reliability to ensure that the observed variable measures the true value and is

    error free. The Cronbach Alpha for the items in the instrument was 0.729. According to Nunally (1978) a

    value of 0.70 and above implies a reliable instrument.

    Data Collection

    The process of data collection involved conducting a pilot study to ensure that the instrument did not have

    items that were difficult for the target respondents. The pilot phase involved five SMEs and revealed useful

    results that led to the modifications of the instrument. The modified instrument involved the drop and pick

    strategy for respondents who could not complete the instrument during the visit. Two research assistants

    were engaged to help in distributing the instrument to owners/managers of the 180 SMEs included in the

    sample.

    35

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    36/81

    Measurement of Constructs

    The literature on SME adoption of ICT seems to suggest that the characteristics of the owner, the firm and

    its environment have an influence on the status of adoption (Thong and Yap, 1995; Johnson and Scholes,

    1993; Wierenga and Ophuis, 1997).

    The measurement of constructs for independent and dependent variables considered in this study were

    based on previous SME innovation diffusion studies. Following diffusion studies (Rogers, 2003) adoption

    was measured using a yes/no construct and a likert item seeking to establish the frequency of use. The

    status of adoption was measured by asking if respondents had invested in ICT artefacts such as Computer,

    Cell Phone, Personal Digital Assistant (PDA), Fax and Internet Connection. Further, the extent of use was

    measured by asking whether they used these artefacts heavily.

    The independent variables relating to the characteristics of the organisation and its ownership or

    management were measured using constructs derived from previous innovation studies. The extent to

    which decision making was centralised was measured, on a 5 point likert scale, as the extent to which

    decision making was centralised on the owner or manager (Wierenga and Ophuis, 1997; Thong and Yap,

    1995; Thong, 1999; Raymond, 1990).

    The extent of formalisation was measured by how well defined the SMEs management structure was and

    whether there were clearly defined job descriptions for everyone in the SME, on a 5 point likert scale. Ease

    of Credit Acquisition has been used as a surrogate for ability to acquire ICT artifacts (Thong and Yap

    1992). In this study, it was measured on a 5 point likert scale as the level of difficulty in acquiring credit

    from banks and other lending institutions. Following Thong and Yap (1995) and Ang and Koh (1997) the

    influence of owner/CEO characteristics such as innovativeness, level of IT knowledge, attitude towards

    ICT and level of education were measured on a 5 point likert scale.

    36

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    37/81

    4 FINDINGS AND INTERPRETATIONS

    Introduction

    This section presents findings from the descriptive and inferential analysis of the survey of factors

    influencing the adoption of ICT among SMEs in Kenya. The objective of the study was to determine the

    influence of owner or manager characteristics, firm characteristics, and its external environments on the

    extent of ICT adoption by SMEs. Findings relating to the demographics of the respondents are presented in

    section 4.2 while the influence of owner/manager characteristics, firm characteristics and external

    environment are presented in sections 4.3, 4.4, and 4.5 respectively. The findings are presented and

    interpreted in light of the theoretical and empirical literature on ICT adoption.

    Demographic Variables

    The literature suggests that respondent characteristics such as age, gender, educational level, and firm

    characteristics like sector, structure and size may influence the uptake of ICT by SMEs (Burke 2005; Ching

    and Ellis 2004; Fillis, and Johansson and Wagner 2003). Respondent owner/managers were asked to state

    the nature and type of their business, level occupied in management hierarchy, gender, age, and highest

    educational level attained. The findings are cross tabulated in sections 4.2.1 through to 4.2.4.

    37

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    38/81

    Sectoral Spread and Ownership of SMEs

    The literature on ICT adoption suggests that the business sector of SME may influence its adoption of ICT

    (Martin and Matlay, 2001). To establish the Sectoral spread and ownership of SMEs surveyed the survey

    instrument included an item on the nature and type of business. Table 4.1 presents the spread of ownership

    and business sector for the firms surveyed.

    FinancialServices

    ProfessionalServices

    Hospitality/Leisure

    Construction

    Retail/Wholesale

    Transport

    Total P

    ercentage

    Sole4 10 9 0 18 1 42 31%

    Partnership3 2 6 1 11 2 25 18%

    Company5 22 9 12 5 16 69 51%

    Total12 34 24 13 34 19 136 100%

    Percentage 9% 25% 18% 10% 25% 14% 100%

    N=136 in this and subsequent tables

    Table 4.1: Sectoral Spread and Ownership of SMEs

    The data in Table 4.1 shows that 90% of the SMEs surveyed were in the service sector. Within this sector,

    less than 10% of the SMEs were in financial services, which consisted of banks, savings and credit co-

    operatives, and insurance firms. SMEs in professional services, consisted of IT services, research

    organisations, health services, educational services, non-governmental service providers and security

    services, and accounted for 25% of the SMEs surveyed.

    The retail and wholesale sector consisted of retail firms dealing in petrol products, books, and fast moving

    consumer goods, and comprised 25% of the SMEs surveyed. Thus only 10% of the SMEs are in the non

    service sector, consisting mainly of firms engaged in the building and construction industry as very few

    SMEs are engaged in manufacturing. This may be a reflection of the small size of the manufacturing sector

    in Kenya.

    38

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    39/81

    In addition to establishing the Sectoral distribution of the SMEs surveyed, their ownership structure was

    also explored. Data in Table 4.1 suggests that half of the SMEs surveyed operated as companies while

    almost one fifth were organised as partnerships, and one third as sole traders. Evidently, the SMEs

    surveyed were predominantly spread in the service sector and organised as companies.

    Age and Position of Respondents

    The respondents age and level in management of the SME was investigated owing to the potential to be

    innovative at a given age and the possibility of support for ICT adoption being based on respondents level

    in management. Table 2.3 presents the findings

    OperationalL

    evel

    Manageme

    nt

    Middlelev

    el

    Manageme

    nt

    TopLeve

    l

    Manageme

    nt

    Total

    Percentag

    e

    < 30 years 3 59 5 67 49%

    30 39 0 44 6 50 37%

    40 49 0 11 4 15 11%

    >50 0 3 1 4 3%

    Total 3 117 16 136 100%

    Percentage 2% 86% 12% 100%

    Table 4.2: Age and Position of Respondents

    Data in Table 4.2 shows that 50% of the respondents are below 30 years of age while only 3% are above 50

    year of age. While only 2% of those who responded were operational managers, 85% of respondents were

    middle level managers, who can be said were at a level that allowed them to respond to the constructs in the

    study meaningfully. Thus the majority of respondents were capable of handling the questions posed,

    having been assigned decision making roles, owing to the flat structure in most SMEs.

    The data shows that the SMEs surveyed were predominantly managed by young non owners. Perhaps the

    youthful nature of their management could made SMEs enthusiastic about ICT innovations. According to

    Rogers (1995) if these young managers view ICT as having relative advantage, easy to use and trialable

    then they would be innovative in applying them to succeed in their careers.

    39

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    40/81

    Age and Gender profile of Respondents

    The gender of respondents was profiled and results cross tabulated against their age. Table 4.3 presents the

    age and gender profile of respondents.

    Male Female Total Percentage

    < 30 years 42 25 67 49%

    30 - 39 35 15 50 37%

    40 - 49 10 5 15 11%

    >50 2 2 4 3%

    Total 89 47 136 100%

    Percentage 65% 35% 100%

    Table 4.3: Age and Gender profile

    Data in Table 4.3 shows that almost two thirds of respondent were males and that half of the respondents

    were below 30 years of age. Thus the data seems to be suggesting that the majority of respondents who

    manage SMEs are young males. Perhaps, given the need to excel in their careers, they may be motivated

    enough to adopt innovations like ICT that can make their firms competitive.

    Age and Level of Education of Respondents

    The literature on diffusion of innovations suggests that knowledge of the innovation may influence its

    uptake (Rogers, 1995). To establish whether the majority of respondents were educated they were asked to

    indicate their highest education level attained. The respondents level of education is cross tabulated against

    their age in Table 4.4.

    Secondary/Vo

    cational

    Bachelor's

    degree

    Masters

    degree

    Professional

    QualificationTotal

    Percenta

    ge

    < 30 years 27 15 0 25 67 49%

    30 - 39 17 21 3 9 50 37%

    40 - 49 4 3 3 5 15 11%

    > 50 2 1 1 4 3%

    Total 50 39 7 40 136 100%

    Percentage 37% 29% 5% 29% 100%

    Table 4.4: Age and Education of Respondents.

    40

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    41/81

    The findings in Table 4.3 show that while only 5% of the respondents report having post graduate

    education close to 60% have either a bachelors degree or professional qualifications. Further, the cross

    tabulation suggests that the majority of these well trained respondents are young, as nearly 90% are below

    40 years.

    This may point to a management of SMEs that are educated, contrary to commonly held belief that they are

    managed by people who are illiterate. Perhaps these respondents are knowledgeable in ICT as university

    and professional programmes cover ICT literacy and proficiency. Thus, it may be assumed that SMEs

    managers know the potential of ICT and may consider them as being advantageous to deploy.

    Section 4.2 presented demographics and introduced their relevance to the problem being investigated. The

    current study sought to determine the extent of ICT adoption and the relative influence of internal and

    external factors considered in the study.

    While section 4.3 explores the extent of ICT adoption, section 4.4 presents regression analysis of the

    significance of manager characteristics, firm characteristics and external environmental influences on the

    adoption of ICT by SMEs and the mean ratings and standard deviations of these explanatory variables.

    Extent of ICT adoption by SMEs

    Adoption is regarded as a dichotomous construct measured using a yes/no item while the extent of adoption

    was measured by considering the perceived extent of use of the ICTs considered, on a 5 point likert scale

    where 1 means strongly disagree and 5 means strongly agree. Figure 4.1: presents the mean extent of ICT

    adoption by SMEs.

    41

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    42/81

    Extent of ICT Adoption

    0.00 1.00 2.00 3.00 4.00 5.00

    We exclusively

    use mobile

    phones

    We exclusively

    use land Lines

    We use internetand email

    services

    heavily

    We use fax

    machines

    heavily

    Me an Extent

    Std. Deviation

    Mean

    Std. Deviation 0.75 1.42 1.73 1.49

    Mean 4.72 3.52 3.33 2.41

    We exclusively

    use mobile

    phones

    We exclusively

    use land Lines

    We use

    internet and

    email serv ices

    We use fax

    machines

    heavily

    Figure 4.1: Mean Extent of ICT Adoption

    The descriptive result in Fig. 4.1 indicates that respondents strongly agree that they exclusively use mobile

    phones. On the other hand they disagree that fax is used heavily and are indifferent on their use of internet

    and e-mail services in the business. This suggests that SMEs have adopted ICTs that have the potential to

    support mobile commerce and business. Evidently, they appear to have abandoned the use of fax and

    favour e-mail as a means of communication. The overall mean extent rate of 3.5, on a 5 point likert scale,

    points at agreement that landlines are used heavily by SMEs.

    Regression Analysis

    The objective of the analysis was to determine the link between owner/manager innovativeness and ICT

    adoption by SMEs. This was achieved by using stepwise regression method to provide a trial and error

    42

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    43/81

    procedure for the best regression estimation of the influence of the predictor variables on the dependent

    variable.

    Stepwise regression method was considered appropriate owing to the exploratory nature of the study and

    the need for a trial and error procedure to find the most influential variables. Stepwise method is applied for

    exploratory research where there are no theory based hypotheses to test (Menard, 1995). This technique

    selects variables for a regression equation one at a time. Selecting first the most valid predictor variable, it

    then selects that variable which when combined with the first is the most useful or adds the most to the

    multiple correlation and which thus yields the best two predictor equation among those equations which

    contain the first variable selected.

    Descriptive Results

    The stepwise method presumes knowledge of the means of the predictor variables. The means and standard

    deviations of these variables provide a preliminary picture of the relative importance of the various

    predictor variables on the adoption of ICT by SMEs. This section presents the results of stepwise multiple

    regressions, beginning with the descriptive statistics and then the inferential statistics that refine the

    preliminary descriptive picture of the influence of the various factors on the adoption of ICT.

    Table 4.5 presents the means and standard deviations.

    Mean Std. Deviation

    Competitive Pressure (COMP) 4.57 0.82

    Manager Attitude (ATTI) 4.56 0.9

    Manager Innovation (INNOV) 4.18 0.86

    State of Infrastructure (STINFR) 4.13 1.12

    State of Economy (STECON) 3.97 1.35

    Manager IT Knowledge (KNOW) 3.88 1.06

    Formalization (FORM) 3.59 1.35

    Centralization (CENTR) 3.49 1.35

    Ease of Credit Acquisition (CREDIT) 2.7 1.18

    Political Influence (POLI) 2.64 1.3

    Size (SIZE) 2.59 1.45

    43

  • 8/3/2019 Full Paper THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

    44/81

    Manager Educational Level (EDUC) 2.27 1.24

    Social Influence (SOC) 1.97 1.05

    Table 4.5: Descriptive Statistics

    The descriptives, in Table 4.5, showing the mean ratings for the influence of the predictor variables, are

    based on a 5 point likert scale, where 1 means strongly disagree or very unimportant and 5 means strongly

    agre