Description
In this file regarding information technology capabilities suggestions for sme growth.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
72
Information Technology Capabilities: Suggestions for SME Growth
Donald L. Lester
Middle Tennessee State University
Thuhang T. Tran
Middle Tennessee State University
ABSTRACT
The manner in which small-to-medium-sized (SMEs) organizations grow and
develop has been a focused interest of management researchers for decades.
Categorizing this development into a life cycle of organizations has been a goal
of researchers for understanding the problems and opportunities associated with
growth. Using Kazanjian’s four-stage organizational life cycle model (1988) to
represent the crises or critical problems faced in each stage, this paper explores
how information technology (IT) capabilities can address the critical problems of
each life cycle stage (i.e., conception and development, commercialization,
growth, and stability) to facilitate continued growth and development.
Introduction
The concept of organizational development has been an important research
agenda for decades. The issue is why some entities grow and even flourish
while others muddle along, falter then surge, or completely go out of existence.
Categorizing organizational development into a life cycle of organizations has
become a commonly accepted method for understanding the problems and
opportunities associated with growth. Essential to this life cycle construct is the
identification of critical problems to overcome during each stage if an
organization is to continue to grow, rather than stagnate or regress.
Such a life cycle model that not only describes discrete stages of development
but also identifies the critical problem to overcome during each stage has been
put forth by Kanzanjian (1988) which is particularly important because of its
emphasis on early development issues involving small to medium sized
enterprises (SMEs). A key component of SME operation in today’s competitive
environments is information technology (IT). We propose that IT can ameliorate
the crises of growth at each stage of Kanzanjian’s organizational life cycle,
enabling small businesses to grow and flourish. Recent surveys of small
business owners/managers revealed that 66% are using the Internet in their
business, 77% feel that a web site is a necessity, 60% wished they had built a
web site sooner, and 85% would recommend other small businesses use this
technology (Greenspan, 2002). Furthermore, the wide reach of the Internet and
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
73
other ITs can help SMEs overcome their size disadvantage and internationalize
new ventures more quickly (Oviatt & McDougall, 1995).
A literature review is presented that briefly explores the organizational life cycle
construct and a discussion of information technology investment in SMEs. Next
a set of propositions is developed pertaining to the relationship between stages
of organizational development and information technology capability building. A
new model is discussed concerning this relationship and future research is
proposed.
Review of the Literature
Life Cycle Models
Researchers have tried for decades to categorize organizational growth and
development into stages or distinct periods commonly referred to as cycles
(Adizes, 1979). Most of this research is based on the biological life cycle
construct, identifying a pattern of development from birth to death. The
observable evidence that organizations are at some point born, attempt to grow
larger and more stable, and eventually die (Kimberly & Miles, 1980) makes the
life cycle model intuitively appealing.
However, empirical research results have varied. Some researchers have found
ample support for the renewal of dying or failing organizations through the
exercise of strategic choice (Child, 1972; Lamberg & Pajunen, 2005; Rasheed,
2005), a notion that contradicts the deterministic assumption of the life cycle
model (Drazin & Kazanjian, 1990; Lester, Parnell, & Carraher, 2003; Lohdal &
Mitchell, 1980). Churchill & Lewis (1983) note that some firms reach a situation
that tends to stay relatively the same for long periods of time, never growing
beyond, for example, the first or second stage of the life cycle. Others have
documented organizations that progress to a mature stage only to fall back to a
growth stage (Miller & Friesen, 1984), demonstrating that it is not inevitable that
organizations must follow a natural progression from birth to growth to maturity to
decline. Furthermore, SMEs do not all progress through the life cycle stages at
the same rate, with some operating at low growth rates in a traditional SME
model, others at a moderate pace in a capped growth model, and a third group at
a high growth rate in an entrepreneurial model of SME (McMahon, 2001).
While a life cycle stage is a loosely comprised set of organizational activities and
structures (Dodge, Fullerton, & Robbins, 1994; Hanks, et al., 1994; Quinn &
Cameron, 1983), it can be determined using four gestalts: strategy, structure,
decision making style, and situation (Miller and Friesen, 1984). Almost all life
cycle models of organizations have multiple stages which vary in length from ten
(Adizes, 1979) to three stages (Smith, Mitchell, & Summer, 1985; Galbraith,
1982). A thorough synthesis presented by Hanks (1990) concluded that most
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
74
researchers of the life cycle construct generally agree on five distinct stages:
start-up, expansion, consolidation, diversification, and decline.
Most attempts at organizational life cycle present a metamorphosis model, a
snapshot of problems encountered by organizations at different stages of growth
and how they cope with those problems (Starbuck, 1971). Few models have
explicitly detailed how an organization actually moves forward or transitions to a
new stage (Kazanjian, 1988), creating a gap in the literature that can only be
filled with empirical life cycle research. One exception is the detailing of the
complete life cycle of a small family business by Lester & Parnell (2006).
A key contribution from the life cycle models for researchers and practitioners
alike is an understanding of how an organization’s activities and structures
change over time. For example, firms shift their focus to different stakeholder
groups as they evolve from one stage to the next because of the change in
contribution provided and attention required from each stakeholder (Jawahar &
McLaughlin, 2001). Social capital, external networking and coaching needs are
more intense and hands-on during the early stages for innovative start-ups
(Clarysse & Bruneel, 2007; Maurer & Ebers, 2006). In the first three stages of
the life cycle, diversification in sales, differentiation in labor force, and level of
labor productivity increases relative to the last stage (Masurel & van Montfort,
2006).
What has emerged from the literature, both theoretical and empirical, is the
notion of a crisis that occurs at some point of organizational growth that must be
overcome if progress is to continue. Some organizations grow in an evolutionary
manner, with occasional periods of revolution that lead to the need for
leadership, coordination, and control (Greiner, 1972). According to Smith et al.
(1985), major priorities for managers include technical efficiency, organizational
coordination, and political support. More specifically, the crises identified are
leadership at the entrepreneurial stage, delegation at the collectivity stage,
flexibility development in the bureaucracy at the formalization stage, and need for
revitalization in the elaboration stage (Quinn & Cameron, 1983). These crises
must be solved during each stage or firms will stagnate and/or die.
Information Technology Capabilities
Another stream of literature relevant to this discussion is the ever-increasing
importance of information technology (IT) to organizational survival and success.
From word processing, to networking, to the internet, to e-commerce, IT has
become the driving force in today’s global economy. Investment in IT is loosely
defined as including computers and telecommunications equipment and their
necessary hardware, software, and services (Dedrick, Gurbaxani, & Kraemer,
2003). Firms regularly invest in IT for such activities as payroll, human
resources, accounting, supply chain management, and a host of other functions
(Rao, Metts, & Monge, 2003). While smaller firms have been more reluctant to
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
75
invest heavily in IT, larger firms have found it almost imperative and profitable
(Stimmel, 2001). Of particular concern to smaller firms is the resource
requirements associated with IT investment (Pool, et al., 2006).
The degree of sophistication of both information and planning and control
systems is a prominent factor in determining the success or failure of business
growth which becomes increasingly important as businesses grow larger and
more complicated (Churchill & Lewis, 1983). Of course this is not to diminish the
importance of the business founder’s willingness to delegate responsibility and
become a manager of others in the small business growth process. In addition,
these systems, such as information systems, must be acquired in advance of
growth so that they are in place when needed. By using IT to automate business
processes and to improve information gathering, access, and quality, small firms
can transform their entire business (Dedrick, et al., 2003). Furthermore, as the
phenomenon of multifactor productivity (MFP) maintains, these improvements
can be gained without additional investment in resources. Over time, IT
investment has been shown to be associated with a shift to higher skilled
workers. In fact, Lester, et al. (2003) found information processing to be the
strongest indicator of a firm’s life cycle stage.
The literature on IT investments by organizations have focused mainly on the
antecedents of IT investment, that is, identifying the external, technological, and
organizational factors that would persuade a firm to adopt IT. External forces
include pressure from competitors, suppliers, and customers as well as the
availability of government incentives and technology consultants (Aguila-Obra &
Padilla-Melendez, 2006; Kim & Jee, 2007). Studies focusing on technological
factors have examined the potential benefits and trade-offs of IT investments
along with the influence of existing related technologies. Organizational support
for IT investment can depend on the firm’s structure, processes, size, culture and
technological capabilities of various firm members, to name a few.
For SMEs, four factors found to have a profound influence on IT investments are:
the perceived cost savings and income generation benefits; external pressure
from rivals, suppliers, and buyers; organizational readiness; and perceived ease
of use (Grandon & Pearson, 2004; Mehrtens, Cragg, & Mills, 2001). IT
investment in SMEs differs from IT investment in large firms because a smaller
number of people have decision-making responsibility, standard procedures are
not instituted, long-term planning is limited, and there is more reliance on
external IT experts in SMEs (Premkumar, 2003). Nonetheless, IT capabilities
may enable the long term survival of SMEs in a number of ways. They provide
access to external knowledge and financial resources, create trust and legitimacy
through widespread information dissemination, and generate more social
network ties (Morse, Fowler, & Lawrence, 2007).
IT investment itself is a process that can occur in stages identified as: initiation,
adoption, adaptation, acceptance, routinization, and infusion (Aguila-Obra &
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
76
Padilla-Melendez, 2006). An in-depth qualitative study by Bruque & Moyano
(2007) found that the factors influencing IT investment (e.g., managerial support,
firm growth, and firm size) have little or no role in its implementation. Other
issues such as staff training, staff socialization, power structure, and hierarchies
play a larger role in IT implementation. For SME executives, once an IT is
adopted, other challenges remain including keeping current with changing IT,
training and educating employees, and receiving timely and accurate information
(Riemenschneider & Mykytyn, 2000).
Our research builds on these two literature streams by using the life cycle
approach to create a model of IT capability building that is dynamic. One
contribution of this research is that it recognizes that not all IT capabilities are
equal or interchangeable in addressing SME growth needs. As a result, a closer
more detailed examination of specific IT capabilities and their applications to
overcome developmental crises at certain stages of organizational growth is
required. In addition, we propose that managers view IT not as a functional tool
but as a strategic capability that can provide the SME with competitive
advantage.
Kazanjian’s Organizational Life Cycle and Crises Model
Although numerous life cycle models exist, this research uses the four-stage life
cycle model developed by Kazanjian (1988) because it primarily focuses on
issues important to smaller enterprises that can be addressed through the
strategic application of IT capabilities. In addition, Kajanjian’s (1988) model is
based on empirical organizational life cycle research, as opposed to other SME-
based life cycle models (e.g., Churchill and Lewis, 1983) which are theoretical.
Since its conception, the life cycle model developed by Kazanjian (1988) has
been applied in a variety of industry, country, and management application
research contexts. For instance, changes in board composition can be
understood from the life cycle approach in conjunction with the relative power of
CEOs and external financiers (Lynall, Golden, & Hillman, 2003). A study of
biotechnology firms in five countries show that their success is dependent on
their ability to harmonize scientific and business plans as these plans develop
through the life cycle stages (Ireland & Hine, 2007). Vohora, Wright, & Lockett
(2004) use life cycles to identify the evolving resource and capability acquisition
activities of university spinout companies. Rutherford, Buller, & McMullen (2003)
delve deeper into the human resources management issues Kazanjian identified
by examining the specific HR problems of hiring, retention, and training that
SMEs face in each stage of the life cycle.
This research seeks to contribute to the life cycle and IT adoption literature as
well as build on Kazanjian’s four-stage model by addressing how the critical
issues identified in this model can be addressed through the strategic
development and application of IT capabilities. The following provides a brief
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
77
review of Kazanjian’s four-stage organizational life cycle model and the related
dominant problems that emerged from a phenomenological study of two high-
technology ventures referred to as alpha and beta and an empirical questionnaire
study of 105 ongoing high-technology ventures.
Kazanjian (1988) predicted that stage one is the conception and development
stage where something is being invented or some process developed for a
business. Constructing and testing a prototype is paramount to continued
existence. The need for resource acquisition and technology development
become the overwhelming focus during this time. Organizational issues of much
importance later, such as structure and formality, are not present during this
stage.
Stage two involves commercialization of the process or invention, focusing on
production issues related to start-up. Financing, at least initial financing, has
been secured, and the firm is planning for the introduction of the product to a
market. Some organizations utilize contract employees or consultants during this
stage in an effort to keep costs down while still being able to tap into research or
administrative expertise.
In stage three, growth, how to obtain more market share and position the
organization to serve more customers become the primary problems to be
solved. The market has accepted the product as a success, leading to a period
of steady growth. Much effort must be focused on keeping up with the growth
through production and customer service functions.
Finally, in stage four, stability, the organization seeks more profitability through a
focus on internal controls, while searching for a future growth base. The
development of a second product offering is, in many cases, the solution to the
growth issue. Adding professional managers is also desirable for stability firms,
and they may support the founder or actually replace her. The addition of
professional managers speeds the policy and procedure development so that the
company becomes somewhat bureaucratized over time. While many
organizational life cycle researchers add a fifth stage, decline, Kanzanjian (1988)
chose not to, perhaps due to the model’s focus on smaller enterprises.
Kazanjian’s (1988) findings partially upheld the predictions, but some new
insights were revealed. Support was found for propositions related to stages
one, three, and partially to four. Predictions for stage two, however, found little
support. Therefore, product or technology development and resource acquisition
proved to be the dominant problems for firms in stage one. As for stage three,
sales and marketing were rated as significantly more important than to firms in
the other stages. In stage four firms, strategic positioning and organizational
issues were rated as important problems. The study also yielded other findings
of interest, including the importance of strategic positioning as an issue in all four
stages by respondents. In addition, the people factor, attracting capable
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
78
employees and talented managers, ranked second or third in each life cycle
stage. And, the sales and marketing factor was rated first or second in three
stages, emphasizing the importance of revenue growth to high technology firms.
Of primary importance to this discussion is the ranking of strategic positioning as
a problem for firms in all four stages. Kazanjian defines strategic positioning as
“a firm’s position in a new product-market segment and the development of a
new product or technology application.” (1988: p. 269). Based on these earlier
findings of Kazanjian (1988) and others previously discussed, we propose that
SMEs acquire and develop information technology capabilities to aid in the
solution of dominant problems for firms at each stage of the organizational life
cycle as depicted in Figure 1. Four propositions are developed below.
Propositions
In the conception and development stage, the firm is a newborn hungry for
financial support, market recognition, and necessary resources. It needs to learn
and develop its capabilities as quickly and as inexpensively as possible. A firm
that can garner the most support from the market and financial community has a
higher chance of surviving to the next stage. Numerous information
technologies (IT) exist to connect the firm depending on the degree of openness
with which the firm is comfortable. The most open and relatively inexpensive
choice is to establish a web presence through a website that can be active or
passive. At first, the site can be used for recruiting, information dissemination,
Crisis:
• Resource
acquisition
• Technology
development
IT Capabilities:
• Creativity
• Connectivity
• Design
Crisis:
• Strategic
positioning
• Recruitment
and training
IT Capabilities:
• Flexibility
• Training
• Communication
Crisis:
• Sales &
marketing
• Internal
control
IT Capabilities:
• Customer
relations
• Market
responsiveness
• Marketing
Crisis:
• Profitability
• Internal control
• Future Growth
IT Capabilities:
• Efficient
Production
• Back- office
support
• Collaboration
SIZE
1. Conception &
Development
2. Commercialization 3. Growth 4. Stability
STAGES OF GROWTH
Figure 1. Crisis and IT Capability Characteristics for the Kazanjian Life Cycle Model
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
79
and communication with potential suppliers, buyers, and industry experts. As the
firm grows into the later stages, the website can be expanded to serve other
functions discussed below. The danger with this openness is that the firm cannot
always control who contributes comments to its website, and strong detractors
may fatally harm this fledgling business. Open source collaboration is an
alternative IT activity that enables the firm to develop projects with supplier and
buyers while controlling access to the venture. For firms that need to protect
their nascent product, the most closed IT activity is to use computer aided
design/computer aided manufacturing (CAD/CAM) in which the entire design
process is kept in-house.
There are costs and benefits from these IT capabilities For instance, CAD/CAM
allows the firm to design and develop new products faster, but requires an
investment in hardware and software in addition to training or hiring skilled
workers to use the technology. In contrast, website management can be handled
by one resident expert or outsourced while open source collaboration systems
can be bought and maintained for a relatively lower cost because of the many
vendors available. In the long run, the initial investment in these technologies will
save the firm the future costs of infrastructure retrofits and employee retraining.
Whichever the choice, the firm needs tools that can help it overcome its crisis of
resource acquisition and technology development.
Proposition 1: Firms in the conception and development stage will
pursue IT capabilities that enable connectivity, creativity, and
design activities.
The crisis in stage 2 develops from the issues the firm faces as it commercializes
its new product or service. Two critical issues identified in Kazanjian’s study
(1988) are the firm’s strategic positioning and the task of getting the right
managers and employees in place to embody and execute its vision. Strategic
positioning is a tricky problem for a new product in an unknown and untested
market. Although the firm may have an idea of to whom and how it should
market its product, once in the market, the product will take on a life of its own,
perhaps delving into unforeseen markets to serve unanticipated needs. While an
IT capability cannot pick a market position for the firm’s product, it can provide
the necessary information and connections to assist the manager in making that
decision, and it can enable the firm to be more responsive to evolving customer
demands. Consequently, IT capabilities need to allow the firm to be flexible,
agile, and knowledgeable about its customers while presenting and maintaining
the company’s core values consistently.
To enable the assessment and adaptation of new project developments, the firm
could invest in project planning and scheduling software. An inventory
management system would enable it to lower inventory costs and better plan
production runs. The Internet could be used to link key value chain functions
such as production, logistics, and marketing and sales enabling the sharing of
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
80
key information to improve production efficiencies and meet customer
expectations. As mentioned earlier, the company’s website can be used as a
recruiting tool, and it can be used also for routine training and communicating
policy changes or improvements to targeted departments.
An underlying challenge in the commercialization stage is the more complex
need for coordination among the various activities. As a result, IT capabilities will
require a higher level of resource commitment in terms of finances, training, and
time to implement and master. In deciding on an IT system, organizations need
to consider long-term costs such as systems’ compatibility, maintenance, and
upgrade costs. Another danger in investing in an IT system is the possibility that
the limitations of the IT system supersedes the needs of the organization, and
new or innovative projects or ideas may be curtailed because they do not
conform easily to the processes and procedures of the instituted technologies. If
the firm can avoid this dilemma, the long-term benefits include enabling an
internal culture of customer responsiveness, quality, and interdepartmental
learning and collaboration.
Proposition 2: Firms in the commercialization stage will pursue IT
capabilities that enable flexibility, training, and communication
activities.
The third life cycle stage, growth, is marked by the need to increase market
share through sales and marketing. Options for increasing sales include finding
new market segments for its existing products, developing product tie-ins and
add-ons for existing customers and products, modifying existing products for
repeat customers, or entering international markets. An IT tool that is critical to
this stage of a firm’s life is customer relationship management (CRM) software
(Campanelli, 2003). While young firms with few customers can usually manage
them with day-to-day interactions, growing firms with hundreds or even
thousands of customers require a system in place that, through a centralized
data base, provides company employees in sales, marketing, customer service,
and other functional areas access to up-to-date files on each customer.
The benefits of developing IT capabilities in an earlier stage can be reaped in the
growth stage because the implemented technology infrastructure can enable
sales and marketing efforts to develop new products and to reach new markets.
The Internet is particularly useful for marketing and sales purposes because of its
global reach and multimedia format. In addition, the growth stage firm can use
emails and text messaging tools to send new product notifications and
advertising to registered customers’ email accounts, cell phones, and personal
digital assistants (PDAs). At this stage, Internet functions can be expanded to
include retailing, routine customer service as well as chatrooms and blogs to
create a branded community which will encourage customer feedback, product
identification, and interaction among community members.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
81
There are several weaknesses with using IT for marketing purposes. One major
drawback to the use of IT in this stage is IT’s limitations with products and
services that require high levels of contact or interpersonal selling. In these
markets, IT cannot replace the personal touch. Second, IT generates a vast
amount of advertising noise which customers soon learn to ignore. Google and
other search engines may yield hundreds of thousands of possible web links for
an item search so firms that want to stand out in the crowd or make it to the top
of the list will have to pay higher fees. A third difficulty is the lack of control over
how the product is received and portrayed by the market; however, this difficulty
may arise even without the use of IT. Despite these complications, the
company’s absence from the tech-sphere will not serve any purpose either. The
success of viral marketing, using IT to tap into social networks for marketing, has
shown that new technologies, like text messaging, cell phones, chatrooms, blogs,
and social networking sites, play a vital role in providing personal endorsements
for products. If the company can maintain a quality image and product, the
benefits of IT outweigh its disadvantages in terms of marketing reach and
advertising expenses.
Proposition 3: Firms in the growth stage will pursue IT capabilities
that enable customer relations, market responsiveness, and
marketing activities.
In the final stage of stability, the firm has reached a level of maturity in terms of
sales revenues and now can focus on improving its operations to ensure
profitability as it searches for the next source of revenues. Of particular concern
is managing costs as competition increases among similar products and
customers focus more on price. Although the activities in Stage 4 resemble
those in previous stages, the SME can focus on making these activities more
effective and efficient in the stability stage when production volumes are more
consistent and predictable and the firm has sufficient slack resources to focus on
these improvements. In addition, the search for new revenue streams in many
ways involves the same capabilities discussed in Stage 1 Conception and
Development.
Some of the IT capabilities introduced in the commercialization stage can assist
with this task since they are designed to grow with the organization and improve
its operational efficiencies. If the company has not already done so, automating
routine office functions with accounting, purchasing, travel, and payroll software
is a primary option for lowering costs. These systems can provide up to date
information that can be utilized to improve operating efficiencies by lowering
queuing, production or delivery time. Furthermore, the market, production, and
personnel information collected by the software programs can be analyzed to
help find additional operational efficiencies or new product and process
innovations. For instance, information about personnel reward preferences may
help to find non-monetary incentives to motivate its employees. Ultimately, an
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
82
early investment in IT not only reduces costs and training time, but it can also
provide a productivity or creativity boost in later stages.
The main problems with relying on technology are the possibility of a system
failure and the occasional system shutdown for maintenance and upgrades.
Although maintenance and upgrades can be scheduled during downtimes or
slow times, organizations need to invest additional funds in back-up systems or
have a protocol to deal with the event of a system failure.
Proposition 4: Firms in the stability stage will pursue IT capabilities
that enable efficient production, back-office support, and
collaboration activities.
Of course, the IT tools suggested in this research are not a complete listing of
available options, but rather, a representative sample of options already
available. Not only are new products being marketed every day, but creative
entrepreneurs are finding new ways to use existing technologies. Once a firm
understands the crisis it faces at each stage of its life cycle, it can develop the IT
capabilities with the characteristics that best match its needs to better meet these
challenges and facilitate its transition to the next stage of development.
Implications for Managers
Kazanjian’s (1988) work produced three clear implications for practicing
managers with regard to crises top managers face in each life cycle stage, and
our follow-up discussion has proposed several IT capabilities that assist with
solving those crises. While Kazanjian’s (1988) findings are somewhat intuitive,
they bear repeating because of their practical soundness. First, where a firm
finds itself positioned in its primary market is important in all four stages of
Kazanjian’s (1988) life cycle. Second, making the most of attracting and
retaining capable employees and talented managers is critical across all four life
cycle stages. Finally, sales and marketing, never to be underestimated in any
business, was rated first or second in importance in three of the four stages.
Table 1 briefly summarizes our IT capability suggestions for solving the life cycle
stage crises.
As Table 1 demonstrates, IT capabilities can help top managers address the
crises that emerge at each life cycle stage. As an added benefit, over time the
accumulation of additional IT implementations, if done properly, removes tedious
distractions from managers’ attention, providing more time for strategic growth-
oriented actions, rather than being bogged down with day-to-day operational
inefficiencies.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
83
Table 1. Summary of IT Capability Suggestions for Kazanjian’s Life Cycle Model
Life Cycle Stage Kazanjian’s Problem Factors IT Capability Suggestions
1. Conception and
development
• Product development
• Resource acquisition
• Sales/Marketing
• Creativity –Open source collaboration;
Website
• Connectivity – Website; e-mail
• Design – CAD/CAM
2. Commercialization • Strategic positioning
• Recruitment and Training
• Flexibility – Project planning and
scheduling software; Inventory
management system
• Training – Online recruitment and
training system
• Communication – Web-linked value
chain activities
3. Growth • Sales/Marketing
• Internal control
• Customer relations – CRM software
• Market responsiveness – Blogs; e-mail;
Text messaging
• Marketing – Website; Social networking
site
4. Stability • Profitability
• Internal control
• Future growth
• Efficient Production – Web-linked value
chain activities
• Back-office support – Automation
software for accounting, payroll,
purchasing, travel, etc.
• Collaboration – Website
Furthermore, the extant literature on IT capabilities in SMEs has focused mainly
on the internal motivations and external pressures for IT investment, which is a
static view of a dynamic process and assumes that all SMEs and information
technologies are homogeneous. Our study recognizes that IT capabilities, like
other capabilities, will evolve as the firm grows, and this evolution is closely tied
to the crises that the organization faces at each life cycle stage. As a result, the
firm will need different types of IT and/or the IT may serve a different function or
need, depending on where the firm is in its development. In practice, the firm
may adopt IT in incremental stages in keeping with its resource constraints.
Conclusions and Future Directions
We have examined ways in which a small business can improve its chances for
survival and continued growth through the use of various information technology
(IT) capabilities at each stage of the Kazanjian (1988) life cycle model to
overcome the identified crises in each stage. In general, IT capabilities can
increase the market reach of the nascent firm and improve its speed to market.
IT tools can be relatively low cost to implement and maintain, and the technology
itself does not have to be a barrier to implementation since many providers
recognize that their customers are not tech savvy and offer service support. In
later stages, IT capabilities can lower the firm’s operating costs while improving
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
84
market responsiveness. However, IT can never replace a skilled, experienced
manager or make a sale in a high-contact sales environment.
A company that wants to develop IT capabilities will need to take into
consideration the functions they serve, their ability to adapt and grow with the
firm, long-term maintenance and upgrade costs as well as their user-friendliness.
Because it is still just a tool, IT cannot help the firm if it has an inferior product
that does not serve a market demand.
IT is, for most growing enterprises, just one factor contributing to continued
progress and improved market share, but it has become if not sufficient, certainly
necessary. The growth in number of IT adopters has grown dramatically in
recent years with many firms already looking to upgrade to the newest IT models
(Riemenschneider & Mykytyn, 2000). Reported survey results show that 58% of
small businesses in the study stated that IT played an important role in their
success, and 61% felt that it had a positive effect on their net income
(Greenspan, 2002). However, IT investments that are used only as a tool is not
sufficient; instead, it must be viewed as a capability to be integrated with other
core capabilities and used strategically (Kim & Jee, 2007).
While SMEs struggle with stretching resources to meet ever-increasing demands
as they grow, IT investment may prove to be unavoidable.
Future research efforts should delve into the differences in IT investment and
development between growing organizations versus those that are stagnant or
even out of business. Of particular relevance will be the relationship between
the IT investment and how it fits with the overall strategic direction of the
organization.
References
Adizes, I. (1979). Organizational passages: Diagnosing and treating life cycle
problems in organizations. Organizational Dynamics, 8, 3-24.
Aguila-Obra, A.R. & Padilla-Melendez, A. (2006). Organizational factors affecting
internet technology adoption. Internet Research, 16 (1), 94-110.
Bruque, S. & Moyano, J. (2007). Organisational determinants of information
technology adoption and implementation in SMEs: The case of family and
cooperative firms. Technovation, 27, 241-253.
Campanelli, M. (July, 2003). Relationship Issues. Entrepreneur, 42-43.
Child, (1972). Organization structure, environment, and performance: The role of
strategic choice. Sociology, 6, 2-22.
Churchill, N., & Lewis, V. (May-June, 1983). The five stages of small business
growth. Harvard Business Review, 61, 30-50.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
85
Clarysse, B. & Bruneel, J. (2007). Nurturing and growing innovative start-ups:
The role of policy as integrator. R&D Management, 37, 139-149.
Dedrick, J., Gurbaxani, V., & Kraemer, K. (2003). Information technology and
economic performance: A critical review of the empirical evidence. ACM
Computing Surveys, 35 (1), 1-28.
Dodge, H., Fullerton, S., & Robbins, J. (1994). Stage of the organizational life
cycle and competition as mediators of problem perception for small
businesses. Strategic Management Journal, 15, 1221-134.
Drazin, R., & Kazanjian, K. (1990). Research notes and communications: A
reanalysis of Miller and Friesen’s life cycle data. Strategic Management
Journal, 11, 319-325.
Galbraith, J. (1982). The stages of growth. Journal of Business Strategy, 3 (4),
70-79.
Grandon, E.E. & Pearson, J.M. (2004). Electronic commerce adoption: an
empirical study of small and medium us businesses. Information &
Management, 42, 197-216.
Greenspan, R. (March 28, 2002). Small Biz Benefits from Internet Tools.
Clickz.com. Retrieved at www.clickz.com.
Greiner, L. (1972). Evolution and revolution as organizations grow. Harvard
Business Review, 50 (4), 37-46.
Hanks, S. (1990). An empirical examination of the organizational life cycle in
high technology firms. Doctoral dissertation, University of Utah.
Hanks, S., Watson, C., Jansen, E., & Chandler, G. (1994). Tightening the life
cycle construct: a taxonomic study of growth stage configurations in high-
technology organizations. Entrepreneurship Theory & Practice, 2, 5-29.
Ireland, D.C. & Hine, D. (2007). Harmonizing science and business agendas for
growth in new biotechnology firms: Case comparisons from five countries.
Technovation, 27, 676-692.
Jawahar, I.M. & McLaughlin, G.L. (2001). toward a descriptive stakeholder
theory: an organizational life cycle approach. Academy of Management
Review, 26, 397-414.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
86
Kazanjian, R. (1988). Relation of dominant problems to stages of growth in
technology-based new ventures. Academy of Management Journal, 31, 257-
279.
Kim, M-K, & Jee, K-Y. (2007). Factors influencing strategic use of information
technology and its impact on business performance of SMEs. ETRI Journal,
29, 497-506.
Kimberly, J., & Miles, R. (1980). The organizational life cycle. San Francisco:
Jossey-Bass Publishers.
Lamburg, J-A., & Pajunen, K. (2005). Beyond the metaphor: The morphology of
organizational decline and turnaround. Human Relations, 58, 947-980.
Lester, D., & Parnell, J. (2006). The complete life cycle of a family business.
Journal of Applied Management and Entrepreneurship, 11 (3), 3-22.
Lester, D., Parnell, J., & Carraher, S. (2003). Organizational life cycle: A five-
stage empirical scale. International Journal of Organizational Analysis, 11,
339-354.
Lohdal, T., & Mitchell, S. (1980). Drift in the development of innovative
organizations. In, Kimberly, J., & Miles, R. (Eds.), The organizational life cycle
(pp. 184-207). San Francisco: Jossey-Bass Publishers.
Lynall, M.D., Golden, B.R., & Hillman, A.J. (2003). Board composition from
adolescence to maturity: A multitheoretic view. Academy of Management
Review, 28, 416-431.
Masurel, E. & van Montfort, K. (2006). Life cycle characteristics of small
professional service firms. Journal of Small Business Management, 44, 461-
473.
Maurer, I. & Ebers, M. (2006). Dynamics of social capital and their performance
implications: lessons from biotechnology start-ups. Administrative Science
Quarterly, 51, 262-292.
McMahon, R.G.P. (2001). Deriving an empirical development taxonomy for
manufacturing SMEs using data from Australia’s Business Longitudinal
Survey. Small Business Economics, 17, 197-212.
Mehrtens, J., Cragg, P.B., & Mills, A.M. (2001). A model of internet adoption by
SMEs. Information & Management, 38, 165-176.
Miller, D., & Friesen, P. (1984). A longitudinal study of the corporate life cycle.
Management Science, 30, 1161-1183.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
87
Morse, E.A., Fowler, S.W., & Lawrence, T.B. (March, 2007). The impact of virtual
embeddedness on new venture survival: Overcoming the liabilities of
newness. Entrepreneurship Theory & Practice, 139-159.
Oviatt, B. & McDougall, P. (1995). Global start-ups: entrepreneurs on a
worldwide stage. Academy of Management Executive, 92, 30-43.
Pool, P., Parnell, J., Spillan, J., Carraher, S., & Lester, D. (2006). Are SMEs
meeting the challenge of integrating e-commerce into their businesses? A
review of the development, challenges and opportunities. International
Journal of Information Technology and Management. 5 (2/3), 97-113.
Premkumar, G. (2003). A meta-analysis of research on information technology
implementation in small business. Journal of Organizational Computing and
Electronic Commerce, 13, 91-121.
Quinn, R., & Cameron, K. (1983). Organizational life cycles and shifting criteria of
effectiveness: Some preliminary evidence. Management Science, 29, 33-41.
Rao, S., Metts, G., & Monge, C. (2003). Electronic commerce development in
small and medium size enterprises. Business Process Management Journal,
9 (11), 11-32.
Rasheed, H.S. (2005). Turnaround strategies for declining small business.
Journal of Developmental Entrepreneurship, 10, 239-252.
Riemenschneider, C.K. & Mykytyn, P.P. Jr. (2000). What small business
executives have learned about managing information technology. Information
& Management, 37, 257-269.
Rutherford, M.W., Buller, P.F., & McMullen, P.R. (2003). Human resource
management problems over the life cycle of small to medium-sized firms.
Human Resource Management, 42, 321-335.
Smith, K., Mitchell, T., & Summer, C. (1985). Top level management priorities in
different stages of the organizational life cycle. Academy of Management
Journal, 28, 799-820.
Starbuck, (1971). Organizational growth and development. London: Penguin
Books.
Stimmel, A. (2001). The nuts and bolts of moving into e-commerce. Consulting to
Management, 12 (4), 46-50.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
88
Vohora, A., Wright, M., & Lockett, A. (2004). Critical junctures in the development
of university high-tech spinout companies. Research Policy, 33 (1), 147-175.
doc_946496020.pdf
In this file regarding information technology capabilities suggestions for sme growth.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
72
Information Technology Capabilities: Suggestions for SME Growth
Donald L. Lester
Middle Tennessee State University
Thuhang T. Tran
Middle Tennessee State University
ABSTRACT
The manner in which small-to-medium-sized (SMEs) organizations grow and
develop has been a focused interest of management researchers for decades.
Categorizing this development into a life cycle of organizations has been a goal
of researchers for understanding the problems and opportunities associated with
growth. Using Kazanjian’s four-stage organizational life cycle model (1988) to
represent the crises or critical problems faced in each stage, this paper explores
how information technology (IT) capabilities can address the critical problems of
each life cycle stage (i.e., conception and development, commercialization,
growth, and stability) to facilitate continued growth and development.
Introduction
The concept of organizational development has been an important research
agenda for decades. The issue is why some entities grow and even flourish
while others muddle along, falter then surge, or completely go out of existence.
Categorizing organizational development into a life cycle of organizations has
become a commonly accepted method for understanding the problems and
opportunities associated with growth. Essential to this life cycle construct is the
identification of critical problems to overcome during each stage if an
organization is to continue to grow, rather than stagnate or regress.
Such a life cycle model that not only describes discrete stages of development
but also identifies the critical problem to overcome during each stage has been
put forth by Kanzanjian (1988) which is particularly important because of its
emphasis on early development issues involving small to medium sized
enterprises (SMEs). A key component of SME operation in today’s competitive
environments is information technology (IT). We propose that IT can ameliorate
the crises of growth at each stage of Kanzanjian’s organizational life cycle,
enabling small businesses to grow and flourish. Recent surveys of small
business owners/managers revealed that 66% are using the Internet in their
business, 77% feel that a web site is a necessity, 60% wished they had built a
web site sooner, and 85% would recommend other small businesses use this
technology (Greenspan, 2002). Furthermore, the wide reach of the Internet and
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
73
other ITs can help SMEs overcome their size disadvantage and internationalize
new ventures more quickly (Oviatt & McDougall, 1995).
A literature review is presented that briefly explores the organizational life cycle
construct and a discussion of information technology investment in SMEs. Next
a set of propositions is developed pertaining to the relationship between stages
of organizational development and information technology capability building. A
new model is discussed concerning this relationship and future research is
proposed.
Review of the Literature
Life Cycle Models
Researchers have tried for decades to categorize organizational growth and
development into stages or distinct periods commonly referred to as cycles
(Adizes, 1979). Most of this research is based on the biological life cycle
construct, identifying a pattern of development from birth to death. The
observable evidence that organizations are at some point born, attempt to grow
larger and more stable, and eventually die (Kimberly & Miles, 1980) makes the
life cycle model intuitively appealing.
However, empirical research results have varied. Some researchers have found
ample support for the renewal of dying or failing organizations through the
exercise of strategic choice (Child, 1972; Lamberg & Pajunen, 2005; Rasheed,
2005), a notion that contradicts the deterministic assumption of the life cycle
model (Drazin & Kazanjian, 1990; Lester, Parnell, & Carraher, 2003; Lohdal &
Mitchell, 1980). Churchill & Lewis (1983) note that some firms reach a situation
that tends to stay relatively the same for long periods of time, never growing
beyond, for example, the first or second stage of the life cycle. Others have
documented organizations that progress to a mature stage only to fall back to a
growth stage (Miller & Friesen, 1984), demonstrating that it is not inevitable that
organizations must follow a natural progression from birth to growth to maturity to
decline. Furthermore, SMEs do not all progress through the life cycle stages at
the same rate, with some operating at low growth rates in a traditional SME
model, others at a moderate pace in a capped growth model, and a third group at
a high growth rate in an entrepreneurial model of SME (McMahon, 2001).
While a life cycle stage is a loosely comprised set of organizational activities and
structures (Dodge, Fullerton, & Robbins, 1994; Hanks, et al., 1994; Quinn &
Cameron, 1983), it can be determined using four gestalts: strategy, structure,
decision making style, and situation (Miller and Friesen, 1984). Almost all life
cycle models of organizations have multiple stages which vary in length from ten
(Adizes, 1979) to three stages (Smith, Mitchell, & Summer, 1985; Galbraith,
1982). A thorough synthesis presented by Hanks (1990) concluded that most
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
74
researchers of the life cycle construct generally agree on five distinct stages:
start-up, expansion, consolidation, diversification, and decline.
Most attempts at organizational life cycle present a metamorphosis model, a
snapshot of problems encountered by organizations at different stages of growth
and how they cope with those problems (Starbuck, 1971). Few models have
explicitly detailed how an organization actually moves forward or transitions to a
new stage (Kazanjian, 1988), creating a gap in the literature that can only be
filled with empirical life cycle research. One exception is the detailing of the
complete life cycle of a small family business by Lester & Parnell (2006).
A key contribution from the life cycle models for researchers and practitioners
alike is an understanding of how an organization’s activities and structures
change over time. For example, firms shift their focus to different stakeholder
groups as they evolve from one stage to the next because of the change in
contribution provided and attention required from each stakeholder (Jawahar &
McLaughlin, 2001). Social capital, external networking and coaching needs are
more intense and hands-on during the early stages for innovative start-ups
(Clarysse & Bruneel, 2007; Maurer & Ebers, 2006). In the first three stages of
the life cycle, diversification in sales, differentiation in labor force, and level of
labor productivity increases relative to the last stage (Masurel & van Montfort,
2006).
What has emerged from the literature, both theoretical and empirical, is the
notion of a crisis that occurs at some point of organizational growth that must be
overcome if progress is to continue. Some organizations grow in an evolutionary
manner, with occasional periods of revolution that lead to the need for
leadership, coordination, and control (Greiner, 1972). According to Smith et al.
(1985), major priorities for managers include technical efficiency, organizational
coordination, and political support. More specifically, the crises identified are
leadership at the entrepreneurial stage, delegation at the collectivity stage,
flexibility development in the bureaucracy at the formalization stage, and need for
revitalization in the elaboration stage (Quinn & Cameron, 1983). These crises
must be solved during each stage or firms will stagnate and/or die.
Information Technology Capabilities
Another stream of literature relevant to this discussion is the ever-increasing
importance of information technology (IT) to organizational survival and success.
From word processing, to networking, to the internet, to e-commerce, IT has
become the driving force in today’s global economy. Investment in IT is loosely
defined as including computers and telecommunications equipment and their
necessary hardware, software, and services (Dedrick, Gurbaxani, & Kraemer,
2003). Firms regularly invest in IT for such activities as payroll, human
resources, accounting, supply chain management, and a host of other functions
(Rao, Metts, & Monge, 2003). While smaller firms have been more reluctant to
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
75
invest heavily in IT, larger firms have found it almost imperative and profitable
(Stimmel, 2001). Of particular concern to smaller firms is the resource
requirements associated with IT investment (Pool, et al., 2006).
The degree of sophistication of both information and planning and control
systems is a prominent factor in determining the success or failure of business
growth which becomes increasingly important as businesses grow larger and
more complicated (Churchill & Lewis, 1983). Of course this is not to diminish the
importance of the business founder’s willingness to delegate responsibility and
become a manager of others in the small business growth process. In addition,
these systems, such as information systems, must be acquired in advance of
growth so that they are in place when needed. By using IT to automate business
processes and to improve information gathering, access, and quality, small firms
can transform their entire business (Dedrick, et al., 2003). Furthermore, as the
phenomenon of multifactor productivity (MFP) maintains, these improvements
can be gained without additional investment in resources. Over time, IT
investment has been shown to be associated with a shift to higher skilled
workers. In fact, Lester, et al. (2003) found information processing to be the
strongest indicator of a firm’s life cycle stage.
The literature on IT investments by organizations have focused mainly on the
antecedents of IT investment, that is, identifying the external, technological, and
organizational factors that would persuade a firm to adopt IT. External forces
include pressure from competitors, suppliers, and customers as well as the
availability of government incentives and technology consultants (Aguila-Obra &
Padilla-Melendez, 2006; Kim & Jee, 2007). Studies focusing on technological
factors have examined the potential benefits and trade-offs of IT investments
along with the influence of existing related technologies. Organizational support
for IT investment can depend on the firm’s structure, processes, size, culture and
technological capabilities of various firm members, to name a few.
For SMEs, four factors found to have a profound influence on IT investments are:
the perceived cost savings and income generation benefits; external pressure
from rivals, suppliers, and buyers; organizational readiness; and perceived ease
of use (Grandon & Pearson, 2004; Mehrtens, Cragg, & Mills, 2001). IT
investment in SMEs differs from IT investment in large firms because a smaller
number of people have decision-making responsibility, standard procedures are
not instituted, long-term planning is limited, and there is more reliance on
external IT experts in SMEs (Premkumar, 2003). Nonetheless, IT capabilities
may enable the long term survival of SMEs in a number of ways. They provide
access to external knowledge and financial resources, create trust and legitimacy
through widespread information dissemination, and generate more social
network ties (Morse, Fowler, & Lawrence, 2007).
IT investment itself is a process that can occur in stages identified as: initiation,
adoption, adaptation, acceptance, routinization, and infusion (Aguila-Obra &
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
76
Padilla-Melendez, 2006). An in-depth qualitative study by Bruque & Moyano
(2007) found that the factors influencing IT investment (e.g., managerial support,
firm growth, and firm size) have little or no role in its implementation. Other
issues such as staff training, staff socialization, power structure, and hierarchies
play a larger role in IT implementation. For SME executives, once an IT is
adopted, other challenges remain including keeping current with changing IT,
training and educating employees, and receiving timely and accurate information
(Riemenschneider & Mykytyn, 2000).
Our research builds on these two literature streams by using the life cycle
approach to create a model of IT capability building that is dynamic. One
contribution of this research is that it recognizes that not all IT capabilities are
equal or interchangeable in addressing SME growth needs. As a result, a closer
more detailed examination of specific IT capabilities and their applications to
overcome developmental crises at certain stages of organizational growth is
required. In addition, we propose that managers view IT not as a functional tool
but as a strategic capability that can provide the SME with competitive
advantage.
Kazanjian’s Organizational Life Cycle and Crises Model
Although numerous life cycle models exist, this research uses the four-stage life
cycle model developed by Kazanjian (1988) because it primarily focuses on
issues important to smaller enterprises that can be addressed through the
strategic application of IT capabilities. In addition, Kajanjian’s (1988) model is
based on empirical organizational life cycle research, as opposed to other SME-
based life cycle models (e.g., Churchill and Lewis, 1983) which are theoretical.
Since its conception, the life cycle model developed by Kazanjian (1988) has
been applied in a variety of industry, country, and management application
research contexts. For instance, changes in board composition can be
understood from the life cycle approach in conjunction with the relative power of
CEOs and external financiers (Lynall, Golden, & Hillman, 2003). A study of
biotechnology firms in five countries show that their success is dependent on
their ability to harmonize scientific and business plans as these plans develop
through the life cycle stages (Ireland & Hine, 2007). Vohora, Wright, & Lockett
(2004) use life cycles to identify the evolving resource and capability acquisition
activities of university spinout companies. Rutherford, Buller, & McMullen (2003)
delve deeper into the human resources management issues Kazanjian identified
by examining the specific HR problems of hiring, retention, and training that
SMEs face in each stage of the life cycle.
This research seeks to contribute to the life cycle and IT adoption literature as
well as build on Kazanjian’s four-stage model by addressing how the critical
issues identified in this model can be addressed through the strategic
development and application of IT capabilities. The following provides a brief
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
77
review of Kazanjian’s four-stage organizational life cycle model and the related
dominant problems that emerged from a phenomenological study of two high-
technology ventures referred to as alpha and beta and an empirical questionnaire
study of 105 ongoing high-technology ventures.
Kazanjian (1988) predicted that stage one is the conception and development
stage where something is being invented or some process developed for a
business. Constructing and testing a prototype is paramount to continued
existence. The need for resource acquisition and technology development
become the overwhelming focus during this time. Organizational issues of much
importance later, such as structure and formality, are not present during this
stage.
Stage two involves commercialization of the process or invention, focusing on
production issues related to start-up. Financing, at least initial financing, has
been secured, and the firm is planning for the introduction of the product to a
market. Some organizations utilize contract employees or consultants during this
stage in an effort to keep costs down while still being able to tap into research or
administrative expertise.
In stage three, growth, how to obtain more market share and position the
organization to serve more customers become the primary problems to be
solved. The market has accepted the product as a success, leading to a period
of steady growth. Much effort must be focused on keeping up with the growth
through production and customer service functions.
Finally, in stage four, stability, the organization seeks more profitability through a
focus on internal controls, while searching for a future growth base. The
development of a second product offering is, in many cases, the solution to the
growth issue. Adding professional managers is also desirable for stability firms,
and they may support the founder or actually replace her. The addition of
professional managers speeds the policy and procedure development so that the
company becomes somewhat bureaucratized over time. While many
organizational life cycle researchers add a fifth stage, decline, Kanzanjian (1988)
chose not to, perhaps due to the model’s focus on smaller enterprises.
Kazanjian’s (1988) findings partially upheld the predictions, but some new
insights were revealed. Support was found for propositions related to stages
one, three, and partially to four. Predictions for stage two, however, found little
support. Therefore, product or technology development and resource acquisition
proved to be the dominant problems for firms in stage one. As for stage three,
sales and marketing were rated as significantly more important than to firms in
the other stages. In stage four firms, strategic positioning and organizational
issues were rated as important problems. The study also yielded other findings
of interest, including the importance of strategic positioning as an issue in all four
stages by respondents. In addition, the people factor, attracting capable
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
78
employees and talented managers, ranked second or third in each life cycle
stage. And, the sales and marketing factor was rated first or second in three
stages, emphasizing the importance of revenue growth to high technology firms.
Of primary importance to this discussion is the ranking of strategic positioning as
a problem for firms in all four stages. Kazanjian defines strategic positioning as
“a firm’s position in a new product-market segment and the development of a
new product or technology application.” (1988: p. 269). Based on these earlier
findings of Kazanjian (1988) and others previously discussed, we propose that
SMEs acquire and develop information technology capabilities to aid in the
solution of dominant problems for firms at each stage of the organizational life
cycle as depicted in Figure 1. Four propositions are developed below.
Propositions
In the conception and development stage, the firm is a newborn hungry for
financial support, market recognition, and necessary resources. It needs to learn
and develop its capabilities as quickly and as inexpensively as possible. A firm
that can garner the most support from the market and financial community has a
higher chance of surviving to the next stage. Numerous information
technologies (IT) exist to connect the firm depending on the degree of openness
with which the firm is comfortable. The most open and relatively inexpensive
choice is to establish a web presence through a website that can be active or
passive. At first, the site can be used for recruiting, information dissemination,
Crisis:
• Resource
acquisition
• Technology
development
IT Capabilities:
• Creativity
• Connectivity
• Design
Crisis:
• Strategic
positioning
• Recruitment
and training
IT Capabilities:
• Flexibility
• Training
• Communication
Crisis:
• Sales &
marketing
• Internal
control
IT Capabilities:
• Customer
relations
• Market
responsiveness
• Marketing
Crisis:
• Profitability
• Internal control
• Future Growth
IT Capabilities:
• Efficient
Production
• Back- office
support
• Collaboration
SIZE
1. Conception &
Development
2. Commercialization 3. Growth 4. Stability
STAGES OF GROWTH
Figure 1. Crisis and IT Capability Characteristics for the Kazanjian Life Cycle Model
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
79
and communication with potential suppliers, buyers, and industry experts. As the
firm grows into the later stages, the website can be expanded to serve other
functions discussed below. The danger with this openness is that the firm cannot
always control who contributes comments to its website, and strong detractors
may fatally harm this fledgling business. Open source collaboration is an
alternative IT activity that enables the firm to develop projects with supplier and
buyers while controlling access to the venture. For firms that need to protect
their nascent product, the most closed IT activity is to use computer aided
design/computer aided manufacturing (CAD/CAM) in which the entire design
process is kept in-house.
There are costs and benefits from these IT capabilities For instance, CAD/CAM
allows the firm to design and develop new products faster, but requires an
investment in hardware and software in addition to training or hiring skilled
workers to use the technology. In contrast, website management can be handled
by one resident expert or outsourced while open source collaboration systems
can be bought and maintained for a relatively lower cost because of the many
vendors available. In the long run, the initial investment in these technologies will
save the firm the future costs of infrastructure retrofits and employee retraining.
Whichever the choice, the firm needs tools that can help it overcome its crisis of
resource acquisition and technology development.
Proposition 1: Firms in the conception and development stage will
pursue IT capabilities that enable connectivity, creativity, and
design activities.
The crisis in stage 2 develops from the issues the firm faces as it commercializes
its new product or service. Two critical issues identified in Kazanjian’s study
(1988) are the firm’s strategic positioning and the task of getting the right
managers and employees in place to embody and execute its vision. Strategic
positioning is a tricky problem for a new product in an unknown and untested
market. Although the firm may have an idea of to whom and how it should
market its product, once in the market, the product will take on a life of its own,
perhaps delving into unforeseen markets to serve unanticipated needs. While an
IT capability cannot pick a market position for the firm’s product, it can provide
the necessary information and connections to assist the manager in making that
decision, and it can enable the firm to be more responsive to evolving customer
demands. Consequently, IT capabilities need to allow the firm to be flexible,
agile, and knowledgeable about its customers while presenting and maintaining
the company’s core values consistently.
To enable the assessment and adaptation of new project developments, the firm
could invest in project planning and scheduling software. An inventory
management system would enable it to lower inventory costs and better plan
production runs. The Internet could be used to link key value chain functions
such as production, logistics, and marketing and sales enabling the sharing of
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
80
key information to improve production efficiencies and meet customer
expectations. As mentioned earlier, the company’s website can be used as a
recruiting tool, and it can be used also for routine training and communicating
policy changes or improvements to targeted departments.
An underlying challenge in the commercialization stage is the more complex
need for coordination among the various activities. As a result, IT capabilities will
require a higher level of resource commitment in terms of finances, training, and
time to implement and master. In deciding on an IT system, organizations need
to consider long-term costs such as systems’ compatibility, maintenance, and
upgrade costs. Another danger in investing in an IT system is the possibility that
the limitations of the IT system supersedes the needs of the organization, and
new or innovative projects or ideas may be curtailed because they do not
conform easily to the processes and procedures of the instituted technologies. If
the firm can avoid this dilemma, the long-term benefits include enabling an
internal culture of customer responsiveness, quality, and interdepartmental
learning and collaboration.
Proposition 2: Firms in the commercialization stage will pursue IT
capabilities that enable flexibility, training, and communication
activities.
The third life cycle stage, growth, is marked by the need to increase market
share through sales and marketing. Options for increasing sales include finding
new market segments for its existing products, developing product tie-ins and
add-ons for existing customers and products, modifying existing products for
repeat customers, or entering international markets. An IT tool that is critical to
this stage of a firm’s life is customer relationship management (CRM) software
(Campanelli, 2003). While young firms with few customers can usually manage
them with day-to-day interactions, growing firms with hundreds or even
thousands of customers require a system in place that, through a centralized
data base, provides company employees in sales, marketing, customer service,
and other functional areas access to up-to-date files on each customer.
The benefits of developing IT capabilities in an earlier stage can be reaped in the
growth stage because the implemented technology infrastructure can enable
sales and marketing efforts to develop new products and to reach new markets.
The Internet is particularly useful for marketing and sales purposes because of its
global reach and multimedia format. In addition, the growth stage firm can use
emails and text messaging tools to send new product notifications and
advertising to registered customers’ email accounts, cell phones, and personal
digital assistants (PDAs). At this stage, Internet functions can be expanded to
include retailing, routine customer service as well as chatrooms and blogs to
create a branded community which will encourage customer feedback, product
identification, and interaction among community members.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
81
There are several weaknesses with using IT for marketing purposes. One major
drawback to the use of IT in this stage is IT’s limitations with products and
services that require high levels of contact or interpersonal selling. In these
markets, IT cannot replace the personal touch. Second, IT generates a vast
amount of advertising noise which customers soon learn to ignore. Google and
other search engines may yield hundreds of thousands of possible web links for
an item search so firms that want to stand out in the crowd or make it to the top
of the list will have to pay higher fees. A third difficulty is the lack of control over
how the product is received and portrayed by the market; however, this difficulty
may arise even without the use of IT. Despite these complications, the
company’s absence from the tech-sphere will not serve any purpose either. The
success of viral marketing, using IT to tap into social networks for marketing, has
shown that new technologies, like text messaging, cell phones, chatrooms, blogs,
and social networking sites, play a vital role in providing personal endorsements
for products. If the company can maintain a quality image and product, the
benefits of IT outweigh its disadvantages in terms of marketing reach and
advertising expenses.
Proposition 3: Firms in the growth stage will pursue IT capabilities
that enable customer relations, market responsiveness, and
marketing activities.
In the final stage of stability, the firm has reached a level of maturity in terms of
sales revenues and now can focus on improving its operations to ensure
profitability as it searches for the next source of revenues. Of particular concern
is managing costs as competition increases among similar products and
customers focus more on price. Although the activities in Stage 4 resemble
those in previous stages, the SME can focus on making these activities more
effective and efficient in the stability stage when production volumes are more
consistent and predictable and the firm has sufficient slack resources to focus on
these improvements. In addition, the search for new revenue streams in many
ways involves the same capabilities discussed in Stage 1 Conception and
Development.
Some of the IT capabilities introduced in the commercialization stage can assist
with this task since they are designed to grow with the organization and improve
its operational efficiencies. If the company has not already done so, automating
routine office functions with accounting, purchasing, travel, and payroll software
is a primary option for lowering costs. These systems can provide up to date
information that can be utilized to improve operating efficiencies by lowering
queuing, production or delivery time. Furthermore, the market, production, and
personnel information collected by the software programs can be analyzed to
help find additional operational efficiencies or new product and process
innovations. For instance, information about personnel reward preferences may
help to find non-monetary incentives to motivate its employees. Ultimately, an
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
82
early investment in IT not only reduces costs and training time, but it can also
provide a productivity or creativity boost in later stages.
The main problems with relying on technology are the possibility of a system
failure and the occasional system shutdown for maintenance and upgrades.
Although maintenance and upgrades can be scheduled during downtimes or
slow times, organizations need to invest additional funds in back-up systems or
have a protocol to deal with the event of a system failure.
Proposition 4: Firms in the stability stage will pursue IT capabilities
that enable efficient production, back-office support, and
collaboration activities.
Of course, the IT tools suggested in this research are not a complete listing of
available options, but rather, a representative sample of options already
available. Not only are new products being marketed every day, but creative
entrepreneurs are finding new ways to use existing technologies. Once a firm
understands the crisis it faces at each stage of its life cycle, it can develop the IT
capabilities with the characteristics that best match its needs to better meet these
challenges and facilitate its transition to the next stage of development.
Implications for Managers
Kazanjian’s (1988) work produced three clear implications for practicing
managers with regard to crises top managers face in each life cycle stage, and
our follow-up discussion has proposed several IT capabilities that assist with
solving those crises. While Kazanjian’s (1988) findings are somewhat intuitive,
they bear repeating because of their practical soundness. First, where a firm
finds itself positioned in its primary market is important in all four stages of
Kazanjian’s (1988) life cycle. Second, making the most of attracting and
retaining capable employees and talented managers is critical across all four life
cycle stages. Finally, sales and marketing, never to be underestimated in any
business, was rated first or second in importance in three of the four stages.
Table 1 briefly summarizes our IT capability suggestions for solving the life cycle
stage crises.
As Table 1 demonstrates, IT capabilities can help top managers address the
crises that emerge at each life cycle stage. As an added benefit, over time the
accumulation of additional IT implementations, if done properly, removes tedious
distractions from managers’ attention, providing more time for strategic growth-
oriented actions, rather than being bogged down with day-to-day operational
inefficiencies.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
83
Table 1. Summary of IT Capability Suggestions for Kazanjian’s Life Cycle Model
Life Cycle Stage Kazanjian’s Problem Factors IT Capability Suggestions
1. Conception and
development
• Product development
• Resource acquisition
• Sales/Marketing
• Creativity –Open source collaboration;
Website
• Connectivity – Website; e-mail
• Design – CAD/CAM
2. Commercialization • Strategic positioning
• Recruitment and Training
• Flexibility – Project planning and
scheduling software; Inventory
management system
• Training – Online recruitment and
training system
• Communication – Web-linked value
chain activities
3. Growth • Sales/Marketing
• Internal control
• Customer relations – CRM software
• Market responsiveness – Blogs; e-mail;
Text messaging
• Marketing – Website; Social networking
site
4. Stability • Profitability
• Internal control
• Future growth
• Efficient Production – Web-linked value
chain activities
• Back-office support – Automation
software for accounting, payroll,
purchasing, travel, etc.
• Collaboration – Website
Furthermore, the extant literature on IT capabilities in SMEs has focused mainly
on the internal motivations and external pressures for IT investment, which is a
static view of a dynamic process and assumes that all SMEs and information
technologies are homogeneous. Our study recognizes that IT capabilities, like
other capabilities, will evolve as the firm grows, and this evolution is closely tied
to the crises that the organization faces at each life cycle stage. As a result, the
firm will need different types of IT and/or the IT may serve a different function or
need, depending on where the firm is in its development. In practice, the firm
may adopt IT in incremental stages in keeping with its resource constraints.
Conclusions and Future Directions
We have examined ways in which a small business can improve its chances for
survival and continued growth through the use of various information technology
(IT) capabilities at each stage of the Kazanjian (1988) life cycle model to
overcome the identified crises in each stage. In general, IT capabilities can
increase the market reach of the nascent firm and improve its speed to market.
IT tools can be relatively low cost to implement and maintain, and the technology
itself does not have to be a barrier to implementation since many providers
recognize that their customers are not tech savvy and offer service support. In
later stages, IT capabilities can lower the firm’s operating costs while improving
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
84
market responsiveness. However, IT can never replace a skilled, experienced
manager or make a sale in a high-contact sales environment.
A company that wants to develop IT capabilities will need to take into
consideration the functions they serve, their ability to adapt and grow with the
firm, long-term maintenance and upgrade costs as well as their user-friendliness.
Because it is still just a tool, IT cannot help the firm if it has an inferior product
that does not serve a market demand.
IT is, for most growing enterprises, just one factor contributing to continued
progress and improved market share, but it has become if not sufficient, certainly
necessary. The growth in number of IT adopters has grown dramatically in
recent years with many firms already looking to upgrade to the newest IT models
(Riemenschneider & Mykytyn, 2000). Reported survey results show that 58% of
small businesses in the study stated that IT played an important role in their
success, and 61% felt that it had a positive effect on their net income
(Greenspan, 2002). However, IT investments that are used only as a tool is not
sufficient; instead, it must be viewed as a capability to be integrated with other
core capabilities and used strategically (Kim & Jee, 2007).
While SMEs struggle with stretching resources to meet ever-increasing demands
as they grow, IT investment may prove to be unavoidable.
Future research efforts should delve into the differences in IT investment and
development between growing organizations versus those that are stagnant or
even out of business. Of particular relevance will be the relationship between
the IT investment and how it fits with the overall strategic direction of the
organization.
References
Adizes, I. (1979). Organizational passages: Diagnosing and treating life cycle
problems in organizations. Organizational Dynamics, 8, 3-24.
Aguila-Obra, A.R. & Padilla-Melendez, A. (2006). Organizational factors affecting
internet technology adoption. Internet Research, 16 (1), 94-110.
Bruque, S. & Moyano, J. (2007). Organisational determinants of information
technology adoption and implementation in SMEs: The case of family and
cooperative firms. Technovation, 27, 241-253.
Campanelli, M. (July, 2003). Relationship Issues. Entrepreneur, 42-43.
Child, (1972). Organization structure, environment, and performance: The role of
strategic choice. Sociology, 6, 2-22.
Churchill, N., & Lewis, V. (May-June, 1983). The five stages of small business
growth. Harvard Business Review, 61, 30-50.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
85
Clarysse, B. & Bruneel, J. (2007). Nurturing and growing innovative start-ups:
The role of policy as integrator. R&D Management, 37, 139-149.
Dedrick, J., Gurbaxani, V., & Kraemer, K. (2003). Information technology and
economic performance: A critical review of the empirical evidence. ACM
Computing Surveys, 35 (1), 1-28.
Dodge, H., Fullerton, S., & Robbins, J. (1994). Stage of the organizational life
cycle and competition as mediators of problem perception for small
businesses. Strategic Management Journal, 15, 1221-134.
Drazin, R., & Kazanjian, K. (1990). Research notes and communications: A
reanalysis of Miller and Friesen’s life cycle data. Strategic Management
Journal, 11, 319-325.
Galbraith, J. (1982). The stages of growth. Journal of Business Strategy, 3 (4),
70-79.
Grandon, E.E. & Pearson, J.M. (2004). Electronic commerce adoption: an
empirical study of small and medium us businesses. Information &
Management, 42, 197-216.
Greenspan, R. (March 28, 2002). Small Biz Benefits from Internet Tools.
Clickz.com. Retrieved at www.clickz.com.
Greiner, L. (1972). Evolution and revolution as organizations grow. Harvard
Business Review, 50 (4), 37-46.
Hanks, S. (1990). An empirical examination of the organizational life cycle in
high technology firms. Doctoral dissertation, University of Utah.
Hanks, S., Watson, C., Jansen, E., & Chandler, G. (1994). Tightening the life
cycle construct: a taxonomic study of growth stage configurations in high-
technology organizations. Entrepreneurship Theory & Practice, 2, 5-29.
Ireland, D.C. & Hine, D. (2007). Harmonizing science and business agendas for
growth in new biotechnology firms: Case comparisons from five countries.
Technovation, 27, 676-692.
Jawahar, I.M. & McLaughlin, G.L. (2001). toward a descriptive stakeholder
theory: an organizational life cycle approach. Academy of Management
Review, 26, 397-414.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
86
Kazanjian, R. (1988). Relation of dominant problems to stages of growth in
technology-based new ventures. Academy of Management Journal, 31, 257-
279.
Kim, M-K, & Jee, K-Y. (2007). Factors influencing strategic use of information
technology and its impact on business performance of SMEs. ETRI Journal,
29, 497-506.
Kimberly, J., & Miles, R. (1980). The organizational life cycle. San Francisco:
Jossey-Bass Publishers.
Lamburg, J-A., & Pajunen, K. (2005). Beyond the metaphor: The morphology of
organizational decline and turnaround. Human Relations, 58, 947-980.
Lester, D., & Parnell, J. (2006). The complete life cycle of a family business.
Journal of Applied Management and Entrepreneurship, 11 (3), 3-22.
Lester, D., Parnell, J., & Carraher, S. (2003). Organizational life cycle: A five-
stage empirical scale. International Journal of Organizational Analysis, 11,
339-354.
Lohdal, T., & Mitchell, S. (1980). Drift in the development of innovative
organizations. In, Kimberly, J., & Miles, R. (Eds.), The organizational life cycle
(pp. 184-207). San Francisco: Jossey-Bass Publishers.
Lynall, M.D., Golden, B.R., & Hillman, A.J. (2003). Board composition from
adolescence to maturity: A multitheoretic view. Academy of Management
Review, 28, 416-431.
Masurel, E. & van Montfort, K. (2006). Life cycle characteristics of small
professional service firms. Journal of Small Business Management, 44, 461-
473.
Maurer, I. & Ebers, M. (2006). Dynamics of social capital and their performance
implications: lessons from biotechnology start-ups. Administrative Science
Quarterly, 51, 262-292.
McMahon, R.G.P. (2001). Deriving an empirical development taxonomy for
manufacturing SMEs using data from Australia’s Business Longitudinal
Survey. Small Business Economics, 17, 197-212.
Mehrtens, J., Cragg, P.B., & Mills, A.M. (2001). A model of internet adoption by
SMEs. Information & Management, 38, 165-176.
Miller, D., & Friesen, P. (1984). A longitudinal study of the corporate life cycle.
Management Science, 30, 1161-1183.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
87
Morse, E.A., Fowler, S.W., & Lawrence, T.B. (March, 2007). The impact of virtual
embeddedness on new venture survival: Overcoming the liabilities of
newness. Entrepreneurship Theory & Practice, 139-159.
Oviatt, B. & McDougall, P. (1995). Global start-ups: entrepreneurs on a
worldwide stage. Academy of Management Executive, 92, 30-43.
Pool, P., Parnell, J., Spillan, J., Carraher, S., & Lester, D. (2006). Are SMEs
meeting the challenge of integrating e-commerce into their businesses? A
review of the development, challenges and opportunities. International
Journal of Information Technology and Management. 5 (2/3), 97-113.
Premkumar, G. (2003). A meta-analysis of research on information technology
implementation in small business. Journal of Organizational Computing and
Electronic Commerce, 13, 91-121.
Quinn, R., & Cameron, K. (1983). Organizational life cycles and shifting criteria of
effectiveness: Some preliminary evidence. Management Science, 29, 33-41.
Rao, S., Metts, G., & Monge, C. (2003). Electronic commerce development in
small and medium size enterprises. Business Process Management Journal,
9 (11), 11-32.
Rasheed, H.S. (2005). Turnaround strategies for declining small business.
Journal of Developmental Entrepreneurship, 10, 239-252.
Riemenschneider, C.K. & Mykytyn, P.P. Jr. (2000). What small business
executives have learned about managing information technology. Information
& Management, 37, 257-269.
Rutherford, M.W., Buller, P.F., & McMullen, P.R. (2003). Human resource
management problems over the life cycle of small to medium-sized firms.
Human Resource Management, 42, 321-335.
Smith, K., Mitchell, T., & Summer, C. (1985). Top level management priorities in
different stages of the organizational life cycle. Academy of Management
Journal, 28, 799-820.
Starbuck, (1971). Organizational growth and development. London: Penguin
Books.
Stimmel, A. (2001). The nuts and bolts of moving into e-commerce. Consulting to
Management, 12 (4), 46-50.
Copyright © 2008 Institute of Behavioral and Applied Management. All Rights Reserved.
88
Vohora, A., Wright, M., & Lockett, A. (2004). Critical junctures in the development
of university high-tech spinout companies. Research Policy, 33 (1), 147-175.
doc_946496020.pdf