Posted: May 25th, 2022
Information Technology and the Small Business
Information technology has had an impact on all areas of society, including a major impact on the business world. For some small businesses, there is an assumption that information technology is only required for major businesses operating on large scales. In contrast, it is suggested that information technology may be even more important to the small business than it is to the large business. Small businesses are often required to be successful against the odds, and while facing major competitive forces. Information technology can provide the kind of advantages that can make the difference. To illustrate this, five areas where information technology can be effectively applied in the small business will now be discussed.
Information and Decision Making
As the business environment becomes more competitive there becomes a greater need for every business to make good decisions. For the small business especially, there is very little room for poor decision making. For example, consider the case of a business trying to decide whether to enter a certain market. A poor decision could involve entering the market and then finding that there are not enough profits to be made to cover costs. The business would then have to leave the market. This process represents one where the business has invested money and received no return on that money. With many small businesses having limited resources, these are mistakes that many business cannot afford. Many other expensive mistakes can be made if a business is not able to make effective decisions. As just one mistake, these may not be enough to ruin a business, but in combination they often can be. Another possibility is that a business may not be informed enough to take action when opportunity arises. Using an example similar to the one above, a market may be available where the business could earn considerable profits. With a lack of information, the business might decide not to enter the market. For a small business struggling to build itself into a profitable entity, missing an opportunity can be as damaging as choosing the wrong opportunity. A small business can avoid mistakes, make good decisions, and identify opportunities if they have the information they need and the ability to apply that information.
To add to the problem of making decisions, small businesses usually find there are an extremely wide range of options available to them. For example, a small business could choose to enter almost any global market. A small business looking to find the right supplier has any number of local and global options available to them. A small business trying to decide on a marketing campaign has options of television campaigns, magazine advertisements, Internet campaigns, or a combination of the three. The range of decisions and the range of possibilities associated with each decision can make managing information an overwhelming task.
An effective use of information technology can help solve this problem for the small business. Information technology can help to gather the information necessary to make effective decisions. Information technology can also be used to process the information so the decision maker receives the information in a useable form. To apply this to the decision of which market to enter, information technology could be use to calculated predicted sales, costs, and expenses in each potential market. The decision of which market to enter could then be made in an informed way, while the calculation process itself is as efficient as possible.
Another major benefit of using information technology is that decisions can be made quickly. This can be important when opportunities arise where quick action needs to be taken to gain advantage from the opportunity. A good example of this can be seen by considering the company Levi Strauss. Levi implemented an information technology program that allowed employees to have immediate information on how each product was selling, how competitor’s products were selling, the volume of products available, and what the demand for each product was. In 2002, this information revealed that Stain Defender pants that were expected to sell around 2 million pairs, would sell far more. In response, Levi was able to increase manufacture of these pants to take advantage of the increased demand. Without the information technology, Levi would not have been able to make the decision quickly enough to take advantage of the opportunity. This shows how the ongoing use of information technology not only helps businesses to make the right decisions in the first place, but also allows businesses to monitor those decisions and make any necessary changes at an early stage. Overall, this can help the business avoid errors and take best advantage of every opportunity. For the small business, this can mean the difference between success and failure.
Control is another major issue for all businesses. As with most aspects of running a business, it becomes more critical to the small business owner because there is less room for error. A major company might suffer form control issues, but remain strong enough to recover. A small business often does not have this room for error.
Control is critically important to a small business because it allows the company to see if it is on track and to make changes if it is not. This refers to the various areas of a business including accounting, human resource management, manufacturing, marketing, and sales. For a business to be effective, all these functions must be performing adequately. For example, perfect manufacturing may do little for the company if the sales function is failing. Perfect manufacturing and sales may do little if accounting is failing and the company is about to run out of the money it needs to continue operating. This control process is normally managed by a performance measurement system.
The performance measurement system involves determining what is critical to the company’s success and then measuring these critical factors. Kaplan and Norton referred to the measurement system as a balanced scorecard system. This system involved measuring four key aspects of a business, which included the financial perspective, the customer perspective, the internal business perspective, and the innovation and learning perspective. Kaplan and Norton referred to their balanced scorecard system as being “like the dials in an airplane cockpit; it gives managers complex information at a glance.” For the small business this system ensures that all the areas that are critical to success are being monitored. This means that the business has the best chance of identifying a problem and taking action before it has a major impact on the business. This is important for all business, but especially crucial to small businesses where problems are almost sure to occur, especially in the initial stages.
The role of information technology in regards to the performance management system is a crucial one. Information technology provides an efficient means of gaining, applying and using information. Consider the case of a business where manufacturing efficiency is crucial to success. Without information technology, a manager might have to manually check data each day to determine manufacturing efficiency and then determine if it is within standards. If it is outside of standards, there is the added problem of finding out the source of the problem. This represents a significant use of time and energy for a manager. With information technology, manufacturing efficiency could be measured on a daily or even an hourly basis. This could be organized so the manager could see figures, but would only be alerted to figures when there is a problem. This would save the manager having to spend their time checking figures, and they could then spend their time completing other tasks. The information technology system could also be setup to measure more factors than a manager could. This additional information could be used to easily identify the source of the problem. The important point is that this process would be continuing constantly, and without taking up a manager’s time. Overall, this provides for efficient and detailed process management, while costing the organization a minimal amount. For a small business needing to operate as efficiently as possible, information technology can provide the kind of control necessary, but without requiring a high input of either time or money.
One of the key aspects of the current business environment is that levels of competition are higher than they’ve ever been. This is largely related to globalization, where businesses are now not only competing against local businesses, but against businesses from all over the world. In addition, there are the many large multinational companies that have the resources to enter almost any market and an interest in expanding their products and services. For the small business, this means that competitive forces are currently high and will likely only increase further in the future.
This high degree of competition makes it important for the small business to operate as efficiently as possible. In saying this, it must be remembered that large companies are operating on a scale that often gives them a major cost advantage. This can make it difficult for the small business to compete, making it even more important to operate efficiently.
Information technology can increase a business’s efficiency in three ways. Firstly, a control system as discussed in the previous section can give a business the opportunity to identify opportunities for improvement and make changes to increase efficiency. Secondly, information technology can be used to work with other businesses, including partners, suppliers, and business providers. Finally, information technology can help a business operate more efficiently internally. These last two aspects relate especially to the ability to communicate using information technology.
In regards to external communication, information technology gives a business the opportunity to work with anyone, regardless of location. The small business can communicate quickly and cheaply via email with anyone in the world. This gives the small business the option of seeking partners, suppliers, and service providers in any location. With the use of teleconferencing technology, a small business can easily work with a partner or even a division in another location, without this being a major cost. This can be a means of a small business gaining the ability to locate resources from around the world. This benefit is one that many multinational corporations have. With the use of information technology, the small business can gain the same advantage.
The use of email can also allow everyone in the company to communicate easily. For more formal communications, there is often a requirement for email to flow through managers. With the use of email, a lower level employee can easily contact someone in another company directly. This can create the kind of relationship building and efficiency that a small business needs.
Internally, the use of information technology tends to connect the workplace. This can occur because all employees are able to communicate quickly and easily via email. This ability tends to result in departments being less separated from each other. Since a business is a set of functions all working to achieve the same overall goal, this interconnectedness can be a major advantage. For example, consider a large company where marketing and production staff rarely contact each other. Marketing may have information available that tells them about a gap in the market. Production may be aware that they could easily and cheaply produce the product to fill that gap. Without effective communication between the two functions, production does not know the need exists and therefore, the gap never gets filled. For a small business, the communication between departments can allow the company to recognize opportunities and take advantage of them. In addition, departments working together can often work in ways that produce greater efficiencies. Overall, this can help a small business operate more efficiently than its larger competitors.
For any business, the final success depends on the ability to meet the needs of customers. If customers are being provided with what they need, how they need it, and for a price that suits them, the business will succeed. Information technology can assist in meeting customer’s needs by building relationships with customers and by making the products or services accessible to customers.
Building relationships with customers has become a major focus for many businesses. Gronroos notes that marketing is no longer about just trying to sell a product, but also about the company building a relationship with the customer. Kotler further describes this trend saying relationship marking involves “providing excellent real-time customer service by developing a relationship with each valued customer through the effective use of individual account information.” The online bookstore Amazon is a good example of how this relationship marketing works. Once you purchase an item from Amazon, or even search for a topic, the site remembers your interests and recommends books of that type. The best thing for Amazon is that this process is tailored to every individual customer, but managed automatically. In short, this is automatic yet focused advertising. As Gronroos says, “a shift is clearly taking place from marketing to anonymous masses of customer, to developing and managing relationships with more or less well-known or at least somehow identified customers.” Information technology becomes important because it is the tool that allows the business to identify the individual. In Amazon’s case, information technology remembers the site user, remembers their interests, and automatically tailors site content to the customer. For other businesses, information technology is used to create a history of each customer. This history is then available to employees so each customer can be treated as an individual. For the small business, such a system can help provide the kind of personal services that many customers expect from a smaller business. In saying this, it should be remembered that many customers actually reject the larger businesses and choose to go to a small business because they specifically want personal service. Information technology can help ensure the small business provides this personal service.
The other important benefit that information technology provides is that it helps make the products or services available to customers. In some cases, a company could make their products available via Internet sales. This could allow a company to easily and cheaply expand their market. In other cases, actual sales via the Internet may not be suitable. However, the Internet still offers a valuable marketing tool by making product or service information available to consumers. Consumers are increasingly using the Internet to research products and services. Information technology can be applied by having an informative web site that provides potential customers with all the information they need. In addition, information technology can help communicate with both current and future customers. For example, a web site could be used for product support so consumers can ask for information or have their questions answered. This systems are often more convenient for customers, as filling in a form to ask for support is quicker for a customer than phoning and having to wait to speak to a sales representative. This convenience for the customer is the major advantage of providing information services via the Internet and is something many small businesses can effectively use. This is especially important if the small business has low staff levels, since an employee can answer replies at a suitable time and not have to be available for phone calls during all business hours.
Human resources is the final area where information technology can be effectively used by the small business. This applies to training employees, empowering employees, and controlling employees.
Training is a major issue in many businesses and is especially relevant because the business world changes so rapidly. This creates a need for employees to constantly be trained so that the company continues to move forward. The major problem with training is the time it takes employees, the inconvenience of having to train at certain times, and the problems that many individuals have with classroom-based learning. Information technology can allow a company to tailor training programs so the employees are only learning what they need to know. The ability to be specific about the skills or knowledge that need to be learned reduces training time. Information technology also allows training to take place via interactive methods, including teleconferencing. This can produce a better output than having employees learn simply from books or manuals.
Information technology also helps empower employees, where empowerment refers to giving employees more responsibility to make their own decisions and manage their own tasks. In his book Business @ The Speed of Thought, Bill Gates writes about connectivity and says that information technology “creates a new universal space for sharing, collaboration and commerce.” In many small businesses, this connectivity arises because all information is contained on a network and becomes available to everyone. This means that an employee in one department has available to them information from all other departments. Having access then gives employees the opportunity to understand more about the business as a whole and to manage their own jobs better. This can be compared to a workplace where an individual wanting to know something would have to ask their manager, who would then have to ask the manager of another department, who would then have to find the information. This is a slow process and usually means that employees at lower levels know little. With information technology giving people access to information, this problem is reduced. With more information, people are then empowered and able to do more. This is especially beneficial to the small business, which is often operating with a small staff. In short, why have an employee have to ask a manager to complete a task, when the employee could just complete the task themselves? Having the employee complete the task themselves increases efficiency and allows managers to make better use of their time. Overall, this increases the efficiency of the business by making the best use of all employees.
The final area where information technology assists human resources is in controlling employees. A control system for employees is similar to the performance management system discussed previously, but focuses on an individual employee. It is this performance management system that often becomes the major motivation for an employee. In short, the more feedback an employee has on what they are doing, the better able they are to make changes and improve. Information technology achieves two important things. Firstly, it provides an effective way of constantly measuring and providing feedback. This is crucial because it allows employees to make changes at the earliest time possible. For example, consider the case of a company that provides feedback to employees on an annual basis. This system means that employees could be performing poorly for a year without even realizing it. Constant feedback also allows employees the opportunity to keep track of their own progress, with this helping employees take responsibility for their own actions. This is better than having to have a manager constantly monitor employees to ensure they are working well. Finally, constant feedback based on measuring results ensures a fair system. This can reduce problems that can arise from performance appraisals where managers are determining who is working well. These types of performance appraisals can involve bias and may even result in discrimination claims. Basing system on measured results avoid these problems.
The various areas that information technology can be applied in the small business have now been discussed. This includes showing the many benefits that information technology can provide. Many small business owners approach to information technology is to wonder if they can afford it. The real question that may be more important to answer is whether they can afford not to make use of it.
Gates, B. (1999). Business @ The Speed of Thought. New York: Penguin.
Girard, K. (2003). How Levi’s got its jeans into Wal-Mart. CIO Magazine July 15, 2003. Retrieved February 22, 2004. URL:
Gronroos, C. (1994). From marketing mix to relationship marketing: Towards a paradigm shift in marketing.” Asia-Australia Marketing Journal, 2(1), 9-29.
Kaplan, R.S., & Norton, D.P. (1992). The balanced score-card: measures that drive performance. Harvard Business Review, Jan-Feb, 71-79.
Kotler, P. Marketing Management. Englewood Cliffs, NJ: Prentice Hall, 2000.
Girard, K. (2003). How Levi’s got its jeans into Wal-Mart. CIO Magazine July 15, 2003. Retrieved November 10, 2003. URL: http://www.cio.com/archive/071503/levis.html
Girard et al.
Kaplan, R.S., & Norton, D.P. (1992). The balanced score-card: measures that drive performance. Harvard Business Review, Jan-Feb, p. 73.
Kaplan & Norton et al., p. 73.
Kotler, P. (2000). Marketing Management. Englewood Cliffs, NJ: Prentice Hall, p. 52.
Gronroos, C. (1994). From marketing mix to relationship marketing: Towards a paradigm shift in marketing.” Asia-Australia Marketing Journal, 2(1), p. 22.
Gates, B. (1999). Business @ The Speed of Thought. New York: Penguin, XVI.
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