Information Technology and the Small Business
Information technology has had an impact on all areas of society, including a major impact on the business world. For some small businesses, there is an assumption that information technology is only required for major businesses operating on large scales. In contrast, it is suggested that information technology may be even more important to the small business than it is to the large business. Small businesses are often required to be successful against the odds, and while facing major competitive forces. Information technology can provide the kind of advantages that can make the difference. To illustrate this, five areas where information technology can be effectively applied in the small business will now be discussed.
Information and Decision Making
As the business environment becomes more competitive there becomes a greater need for every business to make good decisions. For the small business especially, there is very little room for poor decision making. For example, consider the case of a business trying to decide whether to enter a certain market. A poor decision could involve entering the market and then finding that there are not enough profits to be made to cover costs. The business would then have to leave the market. This process represents one where the business has invested money and received no return on that money. With many small businesses having limited resources, these are mistakes that many business cannot afford. Many other expensive mistakes can be made if a business is not able to make effective decisions. As just one mistake, these may not be enough to ruin a business, but in combination they often can be. Another possibility is that a business may not be informed enough to take action when opportunity arises. Using an example similar to the one above, a market may be available where the business could earn considerable profits. With a lack of information, the business might decide not to enter the market. For a small business struggling to build itself into a profitable entity, missing an opportunity can be as damaging as choosing the wrong opportunity. A small business can avoid mistakes, make good decisions, and identify opportunities if they have the information they need and the ability to apply that information.
To add to the problem of making decisions, small businesses usually find there are an extremely wide range of options available to them. For example, a small business could choose to enter almost any global market. A small business looking to find the right supplier has any number of local and global options available to them. A small business trying to decide on a marketing campaign has options of television campaigns, magazine advertisements, Internet campaigns, or a combination of the three. The range of decisions and the range of possibilities associated with each decision can make managing information an overwhelming task.
An effective use of information technology can help solve this problem for the small business. Information technology can help to gather the information necessary to make effective decisions. Information technology can also be used to process the information so the decision maker receives the information in a useable form. To apply this to the decision of which market to enter, information technology could be use to calculated predicted sales, costs, and expenses in each potential market. The decision of which market to enter could then be made in an informed way, while the calculation process itself is as efficient as possible.
Another major benefit of using information technology is that decisions can be made quickly. This can be important when opportunities arise where quick action needs to be taken to gain advantage from the opportunity. A good example of this can be seen by considering the company Levi Strauss. Levi implemented an information technology program that allowed employees to have immediate information on how each product was selling, how competitor’s products were selling, the volume of products available, and what the demand for each product was. In 2002, this information revealed that Stain Defender pants that were expected to sell around 2 million pairs, would sell far more. In response, Levi was able to increase manufacture of these pants to take advantage of the increased demand. Without the information technology, Levi would not have been able to make the decision quickly enough to take advantage of the opportunity. This shows how the ongoing use of information technology not only helps businesses to make the right decisions in the first place, but also allows businesses to monitor those decisions and make any necessary changes at an early stage. Overall, this can help the business avoid errors and take best advantage of every opportunity. For the small business, this can mean the difference between success and failure.
Control is another major issue for all businesses. As with most aspects of running a business, it becomes more critical to the small business owner because there is less room for error. A major company might suffer form control issues, but remain strong enough to recover. A small business often does not have this room for error.
Control is critically important to a small business because it allows the company to see if it is on track and to make changes if it is not. This refers to the various areas of a business including accounting, human resource management, manufacturing, marketing, and sales. For a business to be effective, all these functions must be performing adequately. For example, perfect manufacturing may do little for the company if the sales function is failing. Perfect manufacturing and sales may do little if accounting is failing and the company is about to run out of the money it needs to continue operating. This control process is normally managed by a performance measurement system.
The performance measurement system involves determining what is critical to the company’s success and then measuring these critical factors. Kaplan and Norton referred to the measurement system as a balanced scorecard system. This system involved measuring four key aspects of a business, which included the financial perspective, the customer perspective, the internal business perspective, and the innovation and learning perspective. Kaplan and Norton referred to their balanced scorecard system as being “like the dials in an airplane cockpit; it gives managers complex information at a glance.” For the small business this system ensures that all the areas that are critical to success are being monitored. This means that the business has the best chance of identifying a problem and taking action before it has a major impact on the business. This is important for all business, but especially crucial to small businesses where problems are almost sure to occur, especially in the initial stages.
The role of information technology in regards to the performance management system is a crucial one. Information technology provides an efficient means of gaining, applying and using information. Consider the case of a business where manufacturing efficiency is crucial to success. Without information technology, a manager might have to manually check data each day to determine manufacturing efficiency and then determine if it is within standards. If it is outside of standards, there is the added problem of finding out the source of the problem. This represents a significant use of time and energy for a manager. With information technology, manufacturing efficiency could be measured on a daily or even an hourly basis. This could be organized so the manager could see figures, but would only be alerted to figures when there is a problem. This would save the manager having to spend their time checking figures, and they could then spend their time completing other tasks. The information technology system could also be setup to measure more factors than a manager could. This additional information could be used to easily identify the source of the problem. The important point is that this process would be continuing constantly, and without taking up a manager’s time. Overall, this provides for efficient and detailed process management, while costing the organization a minimal amount. For a small business needing to operate as efficiently as possible, information technology can provide the kind of control necessary, but without requiring a high input of either time or money.
One of the key aspects of the current business environment is that levels of competition are higher than they’ve ever been. This is largely related to globalization, where businesses are now not only competing against local businesses, but against businesses from all over the world. In addition, there are the many large multinational companies that have the resources to enter almost any market and an interest in expanding their products and services. For the small business, this means that competitive forces are currently high and will likely only increase further in the future.
This high degree of competition makes it important for the small business to operate as efficiently as possible. In saying this, it must be remembered that large companies are operating on a scale that often gives…