Bringing synergy to firm strategy: it strategy for better firm performance in SMES.

• Author: Wang, Daisy
• Position: Small and medium sized companies - Report

1. INTRODUCTION

   SMEs have played critical roles in global economies (Barad & Gien, 2001; Chen, Chong, & Chen, 2000; Fiegenbaum & Karnani, 1991; Sherman 1999; Sum, Know, & Chen 2004). The U.S. Commerce Department defines SME as a company with less than 500 employees (Clark, 2005). SMEs employ almost half of the U.S. workforce and two-third of all employees in Europe. SMEs constitute 97% of U.S. exporters and are responsible for more than one-fourth of U.S. exports. Despite the importance of SMEs to global economies, academia did not pay enough attention to SMEs.

   SMEs are considered weaker in the marketplace because of lack of managerial expertise and fewer financial resources, but they are usually more flexible than large firms and the decision-making process is efficient and effective (Ebben & Johnson, 2005; Fiegenbaum et al. 1991; Jarillo, 1989; Sherman, 1999). Several researchers have concluded that strategies function differently in small firms than in large ones (Fiegenbaum et al. 1991; Jarillo 1989) and have different impacts. With distinctive advantages that SMEs have but large firms seldom have, it is interesting to examine how firm strategy impacts IT strategy and how these two strategies affect firm performance. Furthermore, studying the relationship between their corporate strategy and IT strategy would provide better understanding of how the former might impact the latter.

   The resource-based view (RBV) emphasized in researching the relationship between IT capabilities and firm performance. Based on empirical studies, RBV suggests that firms with IT capabilities outperform the industry average because this capability helps firms build sustainable competitive advantages (Bharadwaj 2000; Ray, Muhanna, & Barney, 2005; Santhanam & Hartono, 2003; Wade & Hulland, 2004). However, little research focused on the process design of IT capability development. The purpose of this study is to develop a theoretical framework to examine the relationship between corporate strategy and IT strategy, intention of building IT capabilities and firm performance, IT budget and firm performance, and IT capabilities intention/IT budget and firm performance of SMEs.

2. LITERATURE REVIEW AND THEORETICAL MODEL

   2.1 SME Strategy

   Several researchers conducted empirical studies to evaluate strategies for SMEs. Fiegenbaum and Karnani (1991) found that SMEs have different competitive advantages from the large firms based on the data collected from more than 3000 companies. They concluded that firm size is negatively correlated with output flexibility. In certain industries, output flexibility is a more useful strategy for small firms than large ones (Fiegenbaum et al. 1991). Sum et al. (2004) indicated that Singapore's high performing SMEs form three strategic clusters: efficient innovators, differentiators, and all-rounders. While differentiators put quality as their strategic priority but incur high cost, efficient innovators focus on innovations and cost efficiency and financially perform the best among the three clusters. All-rounders do not contain any operational advantage and rely on marketing more than operations for competitive advantages. A similar research by Kathuria (2000) utilizing 196 SMEs in the U.S. identified four clusters including starters, efficient conformers, speedy conformers and do all. Among these SMEs, efficient conformers in particular perform the best using strategic focus on quality and cost. Ebben and Johnson (2005) studied 200 firms and found that small firms with a focus on either...