DEVELOPMENT OF RESEARCH FRAMEWORK

CHAPTER 3: DEVELOPMENT OF RESEARCH FRAMEWORK

Based on the discussion in the literature review, we posit that proactivity is essential to the growth of an SME and that IT-enabled collaboration among SMEs has the potential to create proactivity (Camison, 1997; Shrader , 2001; Aragón-Correa et al., 2008; McNurlin et al., 2008; Parker and Collins, 2010; Randmaa, 2011). Hence, we integrate information from previous studies to develop our research model, as shown in Figure 3-1.

Figure 3-1 Research Framework

The research model illustrates two varieties of IT-enabled collaboration among SMEs: collaboration with business partners and collaboration with customers. In the last chapter, we defined proactivity as having three dimensions: foresight (focus on time in advance), desire for change (focus on willingness), and readiness for change (focus on initiation and readiness). We propose that IT-enabled collaboration

contributes to the development of proactivity. Furthermore, the three dimensions of proactivity also relate to the performance of SMEs. Three types of SME performance are considered in this study: financial, operational, and relational. In most of the previous literature, scholars have proposed financial performance measures, such as cost and profitability, as dimensions of organizational performance (Sink, 1985; Peel

IT-enabled

Desire for change

Readiness for change H3

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and Bridge, 1998; Omerzel and Antoncic, 2008; Hudson et al. 2001). Additionally, previous studies used cash flow, market share, overhead cost reduction, inventory performance, cost control, sales, profitability, efficiency, and product cost reduction as the measurements of financial performance for an SME. In addition to the traditional financial perspective, we argue that operational performance is another essential type of SME performance that consists of time savings, labor savings, and error reduction.

Time savings has been considered both a source of competitive advantage and a basic measure of performance (Neely et al., 1995). For labor savings, Sink and Tuttle (1989) proposed productivity and effectiveness as performance criteria. Moreover, the risk reduction strategies that SMEs adopt are important for business operations (Kotey and Meredith, 1997; Shepherd et al., 2000). We suggest relational performance as a third type of SME performance that measures a company’s relationships with its

cooperative partners (Vickery et al., 2004). Specifically, Stank, Goldsby, and Vickery (1999) found that creating strong relationships with important customers allows firms to achieve a sustainable advantage by tailoring offerings to the needs of their

customers. Gwinner et al. (1998) further stressed that well-developed relationships can have beneficial confidential, social, or special treatment aspects. The details of this model will be described in the following sections.

3.1 IT-enabled collaboration

3.1.1 IT-enabled collaboration with SME partners

For SMEs, IT-enabled collaboration with partners is a good way of gathering industrial information, scanning the business environment to identify new

opportunities, and acquiring external knowledge resources (Laurie, 2001; Sawers et al., 2008). Wigand et al. (1997) noted that IT-enabled collaboration enhances networkability among partners so that companies can discover the most recent business trends through information sharing (Huisman and Smits, 2007) and take action before their competitors. Thus, we develop hypothesis H1a as follows:

H1a: IT-enabled collaboration with SME partners has a positive effect on the

‘foresight’ capability of SMEs.

At the same time, IT-enabled collaboration provides a common platform for accessing information and thus increases the opportunities for open discussion among participating firms (Moch et al., 2011). The exchange of ideas, experiences and practices in the open discussion provide a means for SMEs to obtain new ideas and ensure sufficient interactions to achieve innovative changes (Aldea-Partanen, 2006).

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H1b: IT-enabled collaboration with SME partners has a positive effect on the

‘desire for change’ capability of an SME.

When companies collaborate with each other, the social linkages between them are characterized as a set of relations based on an exchange of resources as well as a means of enhancing new opportunities (Ulrich and Barney, 1984; Lechner and Dowling, 2003). Complementary resource exchange through collaboration creates a good foundation for change and innovation (Wincent et al., 2010). Moreover, IT makes communication among partners much easier and more efficient. Companies can either create a friendly environment in which change can occur or resolve environmental barriers (Cairncross, 2001) that may impede changes. Therefore, we propose Hypothesis 1c, as follows:

H1c: IT-enabled collaboration with SME partners has a positive effect on the

‘readiness for change’ capability of SMEs.

3.1.2 IT-enabled collaboration with SME customers

It has become increasingly difficult to meet the needs of diversified customers.

Thus, it is important for companies to use strategic solutions, such as IT-enabled collaboration, to resolve this difficulty (Hammer and Champy, 1993; O'Neill and Sohal, 1999). By gathering customer profiles or through collaborative filtering, SMEs are capable of identifying the overwhelming number of existing and potential interests of their customers (Herlocker et al, 2004) so that they can predict business trends and innovate to achieve the best timing. Accordingly, Hypothesis 2a was developed, as follows:

H2a: IT-enabled collaboration with SME customers has a positive effect on the

‘foresight’ capability of SMEs.

To obtain optimal results from IT-enabled collaboration with customers, SMEs must predict their future resources and competences and prepare in advance to interact with customers rather than simply responding to customers’ requests. This foresight makes SMEs more willing to change. IT also creates an open communication channel that enables companies to exchange information with SMEs and customers so that new ideas are easily generated (Gibbert et al., 2002). Companies are therefore more

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willing to change to turn their ideas into realities. Hence, Hypothesis H2b is presented as follows:

H2b: IT-enabled collaboration with customers has a positive effect on the

‘desire for change’ capability of SMEs.

Moreover, IT enables SMEs to accumulate and analyze customer data. When SMEs recognize customer shopping patterns, they may have a better idea of how to manage their brand and increase customer trust and loyalty (Feindt et al. 2002).

Improved knowledge about customers guides firms in initiating change (Bates, 1991;

Kenny and Fahy, 2011). During the process of collaborating with customers, firms can create additional relational resources and increase their competence in responding to customers’ needs (Forsström and Törnroos, 2005). SMEs are thus better able to take control of their circumstances and initiate changes. Consequently, we develop Hypothesis 2c as follows:

H2c: IT-enabled collaboration with SME customers has a positive effect on the

‘readiness for change’ capability of SMEs.

3.2 SME Proactivity

For an SME to be innovative, the company needs to search for new opportunities by tracking changes or conducting research over time (Arnold and Thuriaux, 1997) to identify opportunities for innovation. With market foresight, SMEs can improve performance through innovation and resource integration (Abro et al., 2011). For example, companies can enter into a new market before competitors and gain the greatest market share (Kim and Mauborgne, 2005); companies can improve the efficiency of the work process and thus decrease operating time in comparison with their competitors; and companies can improve their relationships with customers and suppliers through better knowledge of how to serve them. For these reasons, we develop Hypothesis 3 as follows:

H3: The ‘foresight’ capability of SMEs has a positive effect on performance.

3.2.2 Desire for change

Because making changes is often costly and risky, SMEs are discouraged from

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initiating change by their limited resources and small number of external linkages (Bates, 1991; Coetsee and Visagie, 1995; Arnold and Thuriaux, 1997). For this reason, overcoming resistance to change and gaining a willingness to create change is usually an issue for SMEs (Coch and French, 1948; Vries, 2011). When desire for change or innovation of SMEs increases through the development of a sense of urgency and increasing confidence (Vries, 2011), employees in these companies will be more ambitious when they encounter business hazards. When companies have a positive orientation toward their work, their sales revenue and working efficiency can grow.

Relationships on SMEs’ supplier or customer side can also become stronger when open discussions are held among SMEs’ active workers (Brennan, 1997). Hypothesis 4 is therefore proposed as follows:

H4: The ‘desire for change’ capability of SMEs has a positive effect on performance.

3.2.3 Readiness for change

The readiness toward change is necessary for companies to manage a dynamic business environment. When an SME prepares for a change or innovation, it needs to expand its resource and competence base with its partners. Collaborating with

partners usually brings a firm more sales channels, more technological resources, and more brand images so that the company can influence its environment and easily initiate change. By initiating change, the company can create higher sales revenue by expanding channels, creating a more efficient operation with sufficient IT support, and strengthening linkages among customers and partners through loyalty building.

Therefore, we suggest that SMEs will improve business performance by increasing their readiness for change. Consequently, the last hypothesis of our research model, Hypothesis 5, is as follows:

H5: The ‘readiness for change’ capability of SMEs has a positive effect on

performance.

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