July 2007

Patterns of ICT adoption and use

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Generally favourable attitude to ICTs amongst the SMEs surveyed, suggests a failure to recognise ICTs' strategic potential.

Introduction

Nearly 92% of all European enterprises employ less than 10 people. Both European Union (EU) policy and UK regional development agencies have sought to actively promote SMEs with the aim of bolstering competitiveness and encouraging collaboration with like-minded businesses.SMEs form the backbone of most economies, and the adoption and use of ICT is widely seen as critical for their competitiveness in the emerging global market. This short paper explores ICT adoption and use patterns amongst SMEs in the southwest London and Thames Valley region of the UK.

ICT adoption and use  in SMEs

SMEs have started using ICTs relatively recently and they are often characterised by inferior technology and management capabilities (Caldeira & Ward, 2002). Previous research found that SMEs are at a disadvantage in terms of ICT use, particularly in relation to innovative use. Although Levy et al., (2001) found that SMEs can behave strategically when it comes to ICT use, they also point to literature highlighting the operational nature of most SME investments in ICTs, driven as they often are by cost and efficiency considerations. We surveyed 378 SMEs out of a total population of 2800 drawn from four economically significant sectors in the southwest London region (see table 1).

Key findings

In this section, we present some of the key findings from the survey of the food, logistics and transport, media, and Internet sectors. We found some interesting differences between what we could characterise as 'traditional' sectors (food, transport and logistics) and 'new' sectors (media, and Internet).

Commonly used ICT applications and reasons for investing in ICT

As table 2 shows, our SMEs focused overwhelmingly on functional applications, mostly sales and marketing functions, and document management systems. We also found that most used some form of accounting software, and a surprising 50% used applications for human resources management. Internet and email usage was also pervasive.

The predominantly operational nature of most ICT investments can be clearly seen in table 3. We found very little indication that investments were motivated by strategic or innovative considerations. However, among the four sectors surveyed we found some evidence of sophisticated ICT usage in the most unexpected quarters, i.e. the 'traditional' sectors of food, transport, and logistics. In both these sectors, ICT usage was driven by the need to comply with government regulation for health and safety in the case of food, and for recording and controlling truck drivers' journey times in the case of the transport sector.

Barriers to ICT adoption

Costs posed the biggest barrier to continued adoption of ICT, with over 55% of respondents identifying this as a problem. By far the single largest source of funds for ICT investment was retained profits, with venture capital and commercial loans accounting for a small proportion of the responses. This clearly shows the cautiousness with which SMEs approach ICT investments. A quarter of the respondents cited lack of internal IT expertise as a barrier to ICT adoption. Informal in house training was the preferred response to ICT skill shortages. Nearly 40% of respondents also cited uncertainty over business benefits from ICT use as an issue. This demonstrates the high level of ignorance concerning the capabilities ICT can afford SMEs.



Perceived benefits from ICT

Table 4 reports the main perceived benefits from the respondents' past adoption of ICTs. Although there were some variations between sectors, the influence of the customer and competitors appeared particularly strong. Broadly speaking, respondents viewed the benefits arising from ICTs as one of product and service enhancement, not just resource saving. The overwhelming response in our survey suggests that irrespective of sector, the SMEs surveyed perceived that their ICT investment represented good value for money.

Business impact of online sales

The business impact of online sales differed between the old and new sectors, with greater impact reported by the 'new' sectors, media and internet services. It may be that the 'traditional' sectors were simply responding to new regulations that required them to adopt certain working practices using ICTs, rather than acting on any specific business expectations or potential benefits from those ICT investments.



Sources of ICT advice

We found that SMEs sought help and advice from friends and family (37% of respondents), ICT suppliers (35%), and ICT consultants (nearly 50%). Most firms also pointed to some level of anxiety in being dependent on consultants. We noted a high level of distrust of external consultants and vendors; SME owner/managers often preferred to work with consultants recommended by known contacts or with friends and family members who had the required levels of ICT expertise.

Awareness of government policy

Despite the existence of a range of policy mechanisms aimed at SMEs at the regional, national and EU levels, our firms demonstrated a high level of ignorance about these initiatives. Those that did comment on policies displayed a level of indifference to these as they were often seen as bureaucratic and cumbersome. This clearly highlights the challenge faced by policy makers and regional development agencies in their efforts to drive ICT adoption and capability building within SMEs.

Key ICT problems

From the survey, we identified a number of other key problems, both technology and business related, with regard to ICT adoption and use. SMEs were concerned about their technology being out of date and were keen to upgrade when the opportunities arose. But this favourable attitude to ICTs was often tempered by harsh business realities of the costs involved in purchasing ICTs and the complexity that SME owner/managers often associated with those technologies. Often, overworked SME owner/managers found themselves totally dependent on ICT suppliers and external consultants in dealing with technology problems and use issues. When this is seen in combination with high levels of distrust of ICT consultants and vendors, we see a general picture of helplessness and frustration for these SME managers.



In terms of business issues, SMEs are often driven by cost and efficiency imperatives. Therefore, managers are keen to establish value for money and often question the benefits from new ICTs. Again, any felt need for new ICTs to improve business efficiency or effectiveness in dealing with clients and customers is often tempered by the lack of internal expertise to judge the appropriate ICT investments and to fix specific ICT-related problems. The situation is often exacerbated when the firms in question do not possess good project management skills that are essential to overcoming resistance to change from staff and to meet time and cost targets.

Conclusions

While our main result indicates a generally favourable attitude to ICTs amongst the SMEs surveyed, it also suggests a failure to recognise ICTs' strategic potential. The majority of ICT applications implemented are at a strictly operational level. A number of SMEs in the 'traditional' sectors did make use of sophisticated ICTs but these were driven more by the needs of regulatory compliance than through any real understanding of ICTs' innovative capacity. SMEs are also generally distrustful of ICT consultants and fear being 'trapped' by spiralling costs associated with 'wasteful' ICT expenditure. In keeping with much of the literature, the owner/manager had significant influence on ICTs adoption decisions, and their ability to understand and appreciate the capabilities afforded by ICTs had an impact on adoption decisions. Some owner/managers were, however, relatively ignorant and even fearful of ICTs, demonstrating that efforts to spread awareness of ICTs through a range of policy mechanisms have not had much success even in a highly urban environment within an economically dynamic region. This overwhelming ignorance of regional, national and EU wide policy initiatives to support SMEs was one of the most surprising of our findings. This strikes at the very heart of SME-oriented policy and support mechanisms. Our findings therefore have important implications for policy aimed at ICTs adoption and use by SMEs. Future research could attempt to compare barriers and facilitators for ICTs adoption and use across different countries as well as between regions within countries. It would also be useful to examine the impacts of regional policies aimed at SMEs in general and with regard to ICTs in particular.  

Acknowledgement: WestFocus initiative (http://www.westfocus.org.uk) for funding this research.

The full report can be found at
http://www.westfocus.org.uk/ICT/Home_3.aspx

NASSCOM assessment of competence

NASSCOM Assessment of Competence (NAC) is an interesting development towards inclusive employment in the ITeS-BPO sector. There is an urgent need for government provision of skill and certification to be spread across the country, so as to enable more equitable distribution of employment and wealth generated by the sector.

The initiative is aimed at creating a robust and continuous pipeline of talent. This will be done by continuously assessing candidates on key skills through a national standard assessment, thus making it easier for firms to screen candidates and also provide training need analysis to candidates. This will then be tied in to training and development efforts to help more candidates become competent to work in the industry. NASSCOM is encouraging State Governments to commit to this program by conducting NAC with their respective deemed universities / colleges. Also, they shall urge other State Governments to align their employment initiatives with NASSCOM Assessment of Competence.

It is envisaged that NAC will help the industry with active participation and support from various State Governments in implementing NAC, which has been designed and developed after due deliberation and support from all industry players across India. Some of the major benefits for State Governments will be employment generation, help in attracting serious investors, and help create a concept of 'education' to 'employability'

NAC is currently being rolled out in partnership with multiple states in India. In 15-18 months, the NAC is expected to be administered on a fix calendar basis 4-6 times a year; with multiple states signing on for any of the above dates. The NAC pilot testing started on August 20, 2005. After the successful completion of pilot, NASSCOM began the process of National roll-out of NAC, which started from the state of Rajasthan. The first NAC administration under this roll-out took place at Jaipur and Ajmer on 18th November 2006. NAC received an overwhelming response and over 2500 candidates were tested on that day.

After national roll-out takes place, candidates will be able to appear for NAC even from small towns; however, it would be a gradual process. It is expected that in a year's time from now, NAC will be available in 30-35 cities across India. Interested parties should keep an eye on the NAC website for further developments.
Source:
http://nac.nasscom.in/

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