Whether Information Technology Can Influence A Firm To Become Innovative

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In view of the competition of globalisation and the rapid changes in the environment for production, it has become more and more important to apply and make use of information technology. Many studies have found that the use of information technology could enable the organisation to have a structural impact. Today's decision makers also consider the use of information technology a tool for sharpening the competitive edge and could help the firm to execute its strategies and to increase its core competitiveness. By making use of information technology to link up the firm's strategies could impact the organisation to gain a lead in the competition.

A medium and small firm believes in the importance of information technology. However, it is an important decision for the medium and small firm if it is to invest in information technology system, because of its limited resources, insufficient finance as well as the lack of highly skilled manpower. If the medium and small firm is unable to effectively introduce information technology within their organisation, not only would they lose their competitive edge, they could possibly face many crisis brought about by investment failure and even have to eventually close down. Therefore, it is vital for the medium and small firm to pay attention to effectively use resources for planning and execution, and to effectively introduce information technology system to bring about the best results. In today's increasing mobile, complicated and inaccurate world economy when most trades and industries are facing greater challenge, the firm is starting to search for new direction hoping to use innovation to produce profit, gain competitive edge and break through the difficulties. (Laforet, 2008). Hamel and Skarzynski proposed the "First law of the innovation economy" to explain the importance of innovation for a firm. If the firm is unable to continue to innovate, it will rapidly encounter failure because of the changes in environment. Innovation becomes the reliable strategy to enable the firm to combat continuous changes (Hamel & Skarzynski, 2001).

This study aims to investigate whether information technology can influence a firm to become innovative. As a result, it can satisfy the needs of its customers and bring about attaining business performance as well as fulfilling the goal of firm management. Therefore this study utilises business performance to evaluate the firm's resulting activities as the best measuring indicator; also to investigate whether information technology and innovation are closely related. Hence, this study will look into the areas of information technology, innovation and business performance as use these as the basic structure for the research study.

Research objective

My project focuses on the relationship among information technology, innovation and business performance in SMEs, the study has the following three aims:

To investigate the introduction of information technology or degrees of investment and how they are each related to innovation and business performance.

To study the effect of information technology and innovation on the business performance of a firm.

To analyse and provide evidence for the relationship between information technology, innovation and the business performance of a firm.

Scope and limitation of the study

This research study aims to investigate how information technology, innovation and business performance relate to each other. This will involve the selection of related medium and small firms from web pages and sending invitations to the chosen firms to participate in the questionnaire survey. However, because the three countries (China, Hong Kong and Taiwan) are different in the rate of growth of the medium and small firm, cultural background and political background, there is a concern that the collection of data will prove to be difficult. It is fear that the number of replies to the questionnaire survey might vary in each country. Eventually it might have to be narrowed down into comparing only one or two countries. But one also wishes to obtain resulting analysis which is more than expected.

Literature Review

Following the rapid growth and popularisation of the World Wide Web, information and communication technology, the environment for production has developed very quickly. The appearance of electronic commerce and supply chain management in new technology and application. Not only does this phenomenon bring about great profit and business opportunities, it also increases the wave of business globalisation. Furthermore, it gives a firm the opportunity to utilise high technology and to affect the decision making to apply information technology. However, in view of the complication and difficulties of the business environment, a firm would only wish to score a win-win situation in this battle of business models. Therefore, today's managers should consider the application of information technology as a tool to improve its competitive edge which can also enable the firm to execute strategies and increase its core competitiveness (Aral & Weill, 2007; Oh & Pinsonneault, 2007). The strategy of using information technology to link up firms could affect the organisation to gain the power for competitive edge (Ravichandran & Lertwongsatien, 2005).

Research has shown that innovation stimulates ventures' growth (Wolff & Pett, 2006). Within a model economy, innovation is the main resources for competitive edge (Lewis, Welsh & Dehler, 2002). Barney (1991) considered from the resource-based view of the firm, successful innovation may be dependent on the presence of other organisation-specific skills and capabilities. For example, research has pointed out that information technology could be used to promote the firm's innovative activities, which raise the business performance as a direct result (Ray, Muhanna & Barney, 2005). Such a result confirms that information technology could raise the firm's competitive edge to benefit the firm's improvement strategy in the market, especially that of innovative activities.

Cooper (1998) considered that the development of information technology has helped to reduce the firm's pressure in capital and raised the management power of high tech system, as well as provided good opportunity for the firm's innovation development. In the same way, Dewett and Jones (2001) also thought that information technology was an important yet neglected way to promote innovation. Because information technology enabled the actual processes of new methods for solving problems, it provided the method for information storage, transfer, handling and taking action. This once again proves the underlying relationship between information technology and innovation.

Information technology not only can enable the smooth communication of information between different departments, it can also enable the firm to use its flexibility to deal with changes to the venture strategy like innovation strategy. Many studies have indicated that successful introduction of information technology depended very much on whether it can link up the venture strategy as well as having a positive relationship with business performance (Chan, Huff, Barclay & Copeland, 1997).

Because the organisation views its business performance based on the evaluation of its strategy, the effective use of resources, and the rate of achievement. The result of such evaluation could become the future reference for the organisation to revise its aims and resource re-distribution. The complication of the business environment affected the organisation's business performance with both internal and external factors. In addition, because of the various opinions of scholars, there are different views on the evaluation structure and indicators for business performance.

Most research studies on the evaluation indicators for business performance produced a combination of multiple factors. Of these, the majority chose financial and market factors. For example, when Manu and Sriram (1996) conducted the study on innovation relationships, adopt performance levels of the innovation types included: Return on investment, cash flow on investment, cash flow on revenue, market share, relative market share and market share growth. Further, Subramanian Nilakanta (1996) Propose organizational performance may be measured using measures of efficiency and/or measures of effectiveness.

To summarise, despite their prominence as key constructs in the literature, possible relationships among innovation, information technology and business performance have not been the subject of extensive investigation (Aral & Weill, 2007; Oh & Pinsonneault, 2007). The literature also pointed out that for a firm to invest in new technology, it often did not clearly consider the relationship between information technology and innovation. This resulted in the heated debate amongst scholars as not all studies clearly indicated the benefit of information technology (Hitt & Brynjolfsson, 1996; Koellinger, 2008).

Regarding the ability for a firm to continuously develop innovation and to take innovation as part of its business strategy, it is necessary to confirm resources could be used in new products or services, as well as provide an agreed structure and agenda, so that innovation could be used to solve problems and link up innovation with the progress of the firm (Bhaskaran, S. 2006). Information technology was considered s the important factor for building up innovative ability (King & Burgess, 2006). In this way, innovative activities together with the help of information technology could produce new workflow in products or services, thus enabled customer loyalty to rise and to stimulate consumer needs and business performance to rise (Frisfammer & Horte, 2005).

Hence, it is necessary for this study to investigate whether the use of information technology can promote the source of innovation; and to understand whether different firms investing in similar information technology could produce different results (for example, business performance). Furthermore, the study could also find out how different type of innovation could bring about various changes and totally different management styles.

Research methods and research structure

This research study aims to investigate the inter-relation between information technology, innovation and business performance. By studying the actual cases of medium and small firms to provide evidence for the relationship of information technology, innovation and business performance. Therefore the essay uses the literature review as basis to build up the research structure. There will be five main parts to the study, which are: research structure and research hypotheses, research methods, research operational definition of variables and measurement, questionnaire design and data analysis method.

This study uses literature review together with research objective to produce theoretical structure. As in Figure 1.

Firm Performance

(Return on Assets/Return on sales / Sales Growth / Market share Growth)



IT Investment

Figure 1 : Conceptual Model

Research methods - This study will design a questionnaire based on the results of the literature review. Each country will be sent about 300 to 500 questionnaires. After the return of questionnaires, the data will be collated and analysed.

Research operational definition of variables and measurement - This study involves different factors including information technology and innovation, factor as business performance, and different structures as operational definition of variables and measurement evaluation.

Questionnaire design - To design a questionnaire according to the results of the study of research structure and review of literature on innovation and business performance.

Data analysis method - This study will use statistics packages to be the data analysis tool. Methods to be used for data analysis include: descriptive statistics, factor analysis, trustworthiness analysis and structural equation model etc.

Data analysis

This study will carry out data analysis according to the research objective in order to find out the relationship between information technology, innovation and the business performance of a firm, and to investigate if the hypothesis of this study could be established. The first section will analyse the results of the questionnaire based on the respondents; the second section will analysis of trustworthiness; the third section will be descriptive statistical analysis; the fourth section will analysis the factors for innovation; the fifth section will investigate evidences for the relationship between information technology, innovation and the business performance of a firm.

A Preliminary Indication of Result

Study of different business type, size, age, profit, capital and turnover, whether will

Lead to different results, So we hope that the comparison is a factor that most affected. Or the results will not be change.

Time Scale

In order to finalise the project critical reading of relevant materials, regular contact with the members concerned with the issue, regular meeting with the advisor, having time oriented move for the feedbacks are the procedures planned to be followed until the final submission of the project.