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IT for Small and Medium-sized Enterprises (SMEs)

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Course lectured at Nyenrode Business University - 27-01-2012

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IT for Small and Medium-sized Enterprises (SMEs)

  1. 1. IT for Small and Medium-sized Enterprises (SMEs) Dr. ir Jan Devos • ELIT-Lab & Industrial Management Department HOWEST • Ghent University • Graaf Karel De Goedelaan 5 • BE-8500 KORTRIJK - BELGIUM • T: +32 56 24 12 72 • F: +32 56 24 12 24 • e-mail: jan.devos@howest.be • e-mail: jgdvos.devos@ugent.be • linkedIn: www.linkedin.com/in/jangdevos • website: http://ela.howest.be/jdevos • Twitter: @jangdevos © Jan Devos - 1
  2. 2. Agenda History of SMEs Definitional problems and heterogeneity Generic characteristics of SMEs in relation with IT: what is the problem? Findings from research Problems & Solutions  IS Failures (OISF)  Lemon Markets  Lack of models – new frameworks Conclusions and future © Jan Devos - 2
  3. 3. History and rise of SMEsSMEs largely ignored until the 1970s• 1953 In the US: Small Business Administration• 1959 Theory of the growth of the firm (Penrose)• 1970s Oil shocks (turning point)• 1971 UK and AU: Bolton & Wiltshire Committees• 1973 Small is beautiful (Schumacher)• 1980s Downsizing & Outsourcing trends• 1990s Internet – “the virtual organization”• 2005 The World is Flat (Friedman)Two (flawed) views on SMEs:• backbone of the economy• second class citizen © Jan Devos - 3
  4. 4. History and rise of SMEs “The perfectly bureaucratic giant industrial unit not only outsets the small- or medium-sized firm and expropriates its owners, but in the end it also ousts the entrepreneur and expropriates the bourgeoisie as a class which in the process stands to lose not only its income but also, what is infinitely more important, its functions.” (Schumpeter, 1942) © Jan Devos - 4
  5. 5. History and rise of SMEs “smallness within bigness” “for a large organization to work it must behave like a related group of small organizations” (Schumacher, 1973) © Jan Devos - 5
  6. 6. History and rise of SMEs• Systems thinking approach learned that SMEs played an important role in an economy separate from, but complementary to a large business.• Business landscape is changing D.B. Audretsch: “The Entrepreneurial Economy” (vs The Managed Economy)• Entrepreneurial SMEs counts for new employment, innovation and sustainability ▫ Strong economic focus by governments (Europe, US, Singapore, Australia, Canada, ...) © Jan Devos - 6
  7. 7. History and rise of SMEs• Reduction in the average size of business firms• High growth new firms provide the majority of new firm jobs• SMEs play an important role in the development of innovation• SMEs may be in a disadvantage in the access to new technology• LE provide better quality jobs but the gap LE-SME in job quality is shrinking • JQ = wages (higher in LE), fringe benefits (more available in LE), job tenure (+/- 4,5 years), employee morale, job satisfaction. © Jan Devos - 7
  8. 8. History and rise of SMEs Do Small Firms Compete with Large Firms? “Despite the pervasive phenomenon of scale economies, the majority of firms have always been small firms. The emergence of small firms as a means of economic development on both sides of the Atlantic has been one of the major new topics of economic policy since the 1980s.” “... small firms seek out markets where they are able to avoid competition with their larger counterparts.” “… small firms pursue a strategy of producing in distinct product niches.” (Audretsch et al., 1999). © Jan Devos - 8
  9. 9. History and rise of SMEs The flatteners: Collapse of the Berlin wall, Outsourcing, Netscape (?), Open Source, Supply Chains, VoIP, WIFI, Smartphones, … (Friedman, 2005) © Jan Devos - 9
  10. 10. Definitional problemBolton committee defined an SME as: (Bolton, 1971) 1) one that has a relatively small market share, 2) one that is managed by its owners or part owners in a personalized way, not by an organized managerial structure, 3) one that is independent with the owners/managers having control of the activities of the business. © Jan Devos - 10
  11. 11. Definitional problemU.S. Small Business Administration (Size Standard) 1) depending on the industry of the SME 2) number of employees (<500) or the average annual receipts 3) independently owned and operated and not dominant in its field of operation © Jan Devos - 11
  12. 12. Definitional problemEUROPE Singapore New Zealand Australia Canada © Jan Devos - 12
  13. 13. SME sector in Belgium 2009 Number of enterprises Flanders Walloon Brussels SMEs (<50) 513.829 238.641 98.371 LE (>50) 3.129 1.092 835 99,4% 99,5% 99,1%Source: website Unizo (http://www.unizo.be/statistieken) © Jan Devos - 13
  14. 14. SME sector in Europe What usually gets lost is that more than 99% of all European businesses are, in fact, SMEs. They provide two out of three of the private sector jobs and contribute to more than half of the total value-added created by businesses in the EU. Moreover, SMEs are the true back-bone of the European economy, being primarily responsible for wealth and economic growth, next to their key role in innovation and R&D. What is even more intriguing is that nine out of ten SMEs are actually micro enterprises with less than 10 employees. Hence, the mainstays of Europes economy are micro firms, each providing work for two persons, in average. This is probably one of the EUs best kept secrets!Source: website Europe (http://ec.europa.eu/enterprise/policies/sme) © Jan Devos - 14
  15. 15. Heterogeneity of the SME sector• Organizational size (head count, turnover, margins, …)• Head count not always relevant for IT example: manufacturing companies > 50 people „blue collars‟ vs „white collars‟• Micro enterprises constitute a separate group (9 out of 10 is µ)• Innovative entrepreneurs or sub-contractors (Pareto analysis: 1 customer / 1 supplier)• Ownership structure: family enterprises• Role of CEO• Management maturity (depends on organizational size)• Exporting – only domestic markets• Economic activity: manufacturing, services, trading, government and not-for-profit organizations• Economic sector: see table © Jan Devos - 15
  16. 16. Heterogeneity of the SME sector NUMBER OF COMPANIES (< 50 people)SECTOR FLANDERS BRUSSELS WALLOON BELGIËOther 36.908 9.738 18.143 64.789Automotive (trade and maintenance) 14.332 2.260 8.046 24.638Construction & Building 65.264 9.993 30.291 105.548Communication & IT 18.959 6.088 7.727 32.774Retail 55.414 10.671 29.307 95.392Financial services 15.088 3.485 6.033 24.606Healthcare 15.516 2.419 8.840 26.775Wholesales 29.218 5.439 8.961 43.618Mediation & Trading 14.316 2.763 8.972 26.051Hotel & catering 34.025 7.066 16.898 57.989Real estate 20.102 5.856 7.179 33.137Industry: agriculture, fishing & forestry 34.823 324 20.290 55.437Chemical industry 2.283 323 1.184 3.790Lumber & Furnishing 3.302 391 1.774 5.467Electronics & IT 1.203 265 508 1.976Manufacturing metals 5.767 340 2.769 8.876Manufacturing paper and press 3.460 717 1.321 5.498Textiles: leather, apparel 2.250 484 823 3.557Alimentation Industry 5.336 554 2.492 8.382Other industries 5.946 724 2.740 9.410Personal services 31.762 3.855 15.102 50.719Logistics & Transport 13.672 2.843 4.616 21.131Business services 84.883 21.773 34.625 141.281 Total 513.829 98.371 238.641 850.841 Source: website Unizo (http://www.unizo.be/statistieken) © Jan Devos - 16
  17. 17. Heterogeneity of the SME sectorSome findings from research Organizational size • SMEs and LEs have not equal experiences with IS success • SMEs and LEs are not equally in using „formal‟ IT Governance method • Micro enterprises differ considerably from small and medium- sized enterprises Economical activity • Trading-SMEs are less „IT minded‟ than in services © Jan Devos - 17
  18. 18. Generic SME characteristics in relation with IT• SMEs have a different economic, cultural and managerial environment (compared to LEs) ▫ Resource poverty (financial, knowledge, internal IT expertise, ...) ▫ Depend on external IT expertise ▫ Low IT capabilities and practices ▫ Intuitive and informal management ▫ more task-centric than process-centric ▫ Slow adopters of IT ▫ Focus (more) on trust, empathy, fairness and devotion less on control, risk and assurance. ▫ Central role of CEO (owner) © Jan Devos - 18
  19. 19. Generic SME characteristics - SME CEO ?• Managerial Attention Deficit Disorder (MADD) - the patient• is easily distracted• pays no attention to his/her environment• looses the power of concentration after a few hours• has no thoughts for details• does not listen when he/she is addressed• jumps to conclusions• interrupts and disturbs the work of collaborators• interferes abruptly into conversations © Jan Devos - 19
  20. 20. Generic SME characteristics in relation with IT• What is the problem ?• - lack of good and appropriate methods for governing IT in SMEs (Cobit, ITIL, ...)• - SMEs should adopt more IT: IT is seen as a driver for innovation and progress• - IT is not always very positively perceived by SMEs (not a good image)• IT and SMEs (Europe, 2004) – The Go Digital Awareness Campaign 2001-2003: The main lessons to be learnt • E-Business is not a top priority for most SMEs • Networking is the most successful marketing strategy to reach SMEs • Awareness raising needs to be based on realistic targets and expectations • SMEs often lack appropriate information about e-business and ICT • Most SMEs remain skeptical about ICT and e-business • Training and managerial change are key issues • Resources and costs matter for SMEs more than for LE • E-business might not always be beneficial for SMEs • Many IT solutions are still too expensive or not trusted © Jan Devos - 20
  21. 21. IS Research in SMEs• Lack of relevant IS research in SMEs ▫ Since 1979 (to august 2010): only 300 refereed A1- publications (Devos, 2010; working paper)• Starting point in 1979 (Ein-Dor & Segev)IS projects are less likely to succeed in SMEs than in large ones. © Jan Devos - 21
  22. 22. IS Research in SMEs• Cultural differences: US vs Europe (+Singapore / New Zealand / Australia)• No agreement on the size standard (5 – 3000)• Absence of a consistent body of research ▫ Too much seen as a homogeneous group ▫ Inconsistent findings (e.g. strategic IT)• Dated research (microcomputers, mini computers, …) © Jan Devos - 22
  23. 23. IS Research in SMEs Studies of SMEs and IT according to IS Research TopicClass Research TopicSoftware and ERP (15), Software packages & COTS (5), Applications (1), CRM (1), ExpertApplications (31) Systems (1), CAD/CAM (1), Stock Record System (1), Groupware (1), Advanced Manufacturing Systems (1), Application Service Providing (1), DSS (1), Marketing Information System (1), Software for innovation (1),Internet and Related Internet (10), E-Commerce (26), E-Business (11), Supply Chain E -Business (5),technologies (71) Websites (3), e-government (1), e-mail (1), www (3), On line connection (1), Electronic Trading Systems (1), EDI (7), Internet Based Techn ologies (2), web services (1)Hardware & Microcomputers (8), IS architecture (1), Computer Network Development &Infrastructure (12) Implementation (1), Hardware & Software (2)Organizational IT (18) Strategic IS (9), IS Sophistication (4), EUC (3), IS Planning (1), IS Architecture (1)Nominal view of IT 115 © Jan Devos - 23
  24. 24. IS Research in SMEs: Literature • SME-IT Literature overview 5 IT Managerial, IT Artifact Impact Methodological, and Satis-Technological Capabilities System Information 6 faction 121 Use 37 1 12 Quality Quality Organiza- Individual 5 1 tional Impact Impact 3 32 8 2 IT Managerial, Methodological, and Technological Practices 14 Source: Benbasat & Zmud, 2003; Gable et al, 2008 Devos, J. Van Landeghem H. & Deschoolmeester D., (2009), IT and SMEs: Literature Overview.
  25. 25. IS Research in SMEs: LiteratureSMEs are often disappointed with their software packages. The disappointment is a result of the inability of the package to adapt to the needs of the company. For SME with less then 20 employees the packages are too difficult to use. (Heikkila et al; Finland)Managers were found to be more successful when they develop their own numeric applications using spreadsheets to provide greater analytical support for decision-making. (Raymond & Bergeron; Canada)Software characteristics, vendor capability and opinions from other concerned groups are relatively important factors when making the software selection decision. (Chau ; Hong-Kong)SMEs that adopt the vendor-only approach have more effective IS than SMEs that adopt the consultant-vendor approach (Thong et al; Singapore) © Jan Devos - 25
  26. 26. IS Research in SMEs: LiteratureTop management support is not as important as effective external IS expertise (Thong et al: Singapore)The most effective IS implementation environment is one in which both top management support and external IS experts work as a team. (Thong et al: Singapore)Most important area of IT dissatisfaction is the lack of training and education. Most important factor of IT satisfaction are the owners attributes (age: younger CEO are more satisfied, gender: female are less likely to be dissatisfied then men). (Fuller & Southern: US)CEO’s innovativeness and IS knowledge are positively associated with the decision to adopt IS in SMEs. The effect of competition on IS adoption in SMEs has no direct effect on IS adoption. (Poon & Swatman: Singapore)In the eyes of SMEs, EDI still is not considered as something that enables them to gain major strategic benefits or competitive advantages. (Van Everdingen et al: Europe) © Jan Devos - 26
  27. 27. IS Research in SMEs: LiteratureOwners innovativeness is the strongest determinant for adopting traditional IT – relative advantage plays most critical role for Internet related technologies. (Chau & Hui: USA)External expertise is the predominant key factor of IS implementation success in SMEs. (Lesjak & Lynn)Three strategies are revealed: 1) ERP systems need to be localized to reflect local management features 2) ERP systems should be customizable at a variety of levels 3) BPR should be carried out in a incremental manner taking the dialectic of organizational learning into account (Levy et al: UK)Different industry sectors significantly differ in the amount spend to IT investments. Firm size does not influence IT investment levels. Strategic benefits vary across different industry sectors. The way employees adapt to change as a result of IT implementations depends on the size of the organization. (Lucchetti & Sterlacchini: Australia)Managerial and vendor support are essential for effective IS in Canadian SMEs. Managers should engage quality vendors to obtain IS that contribute to the specific goals of the small business. © Jan Devos - 27
  28. 28. IS Research in SMEs: Survey (Devos, 2008) IT Governance• Investigation to the relevance of ▫ Strategic IT ▫ IT Outsourcing ▫ IT Failures IT Outsourcing SMEs IT Failures ▫ IT Governance Strategic IT• Survey (2008) – 12 questions #1538 organizations (random group) #169 response (11%) © Jan Devos - 28
  29. 29. IS Research in SMEs: Survey (Devos, 2008) Organizational size 38% 22% 23% 16% Micro (< 10) Small (10< <50) Medium-sized Large (250<) (50< <250)©Jan Devos © Jan Devos - 29
  30. 30. IS Research in SMEsStrategic IT • Strategic Information Systems (SIS) developed to support, change or enable Business Processes and Business Strategies. (Porter) • Has a profound impact on the operational, tactical and strategic level of a business • Example: Enterprise Systems (ERP) “Large scale (?), real-time, integrated application-software packages that use the computational, data storage, and data transmission power of modern IT to support processes, information flows, reporting, and business analytics within and between complex organizations” © Jan Devos - 30
  31. 31. IS Research in SMEs: Survey (Devos, 2008) Owners & Managers ? © Jan Devos - 31
  32. 32. IS Research in SMEs: Survey (Devos, 2008) Organizational size ? Industry ? © Jan Devos - 32
  33. 33. IS Research in SMEsIT Outsourcing• Project Management Outsourcing (Lacity & Hirschheim) = outsourcing for a specific project or portion of IS work. Ex. use of vendors to develop a new system, support an existing application,…• In these cases the vendor is responsible for managing and completing the work• Principal-Agent setting © Jan Devos - 33
  34. 34. IS Research in SMEs: Survey (Devos, 2008)Number of conducted IT projects Number of conducted IT projects depends on organizational size Number of conducted IT projects is least in trading © Jan Devos - 34
  35. 35. IS Research in SMEs: Survey (Devos, 2008)Sourcing strategy Less outsourcing in micro and large organizations Outsourcing is mainly done by small and medium-sized enterprises © Jan Devos - 35
  36. 36. © Jan Devos - 1
  37. 37. What are IS Failures ?Engineering Failures? © Jan Devos - 1
  38. 38. What are IS Failures ? An IS Failure is an outcome of a human process © Jan Devos - 1
  39. 39. IS Research in SMEsIS Failures• Best kept (public) secret worldwide ?• A lot of research for almost 45 years • 1967, Management misinformation systems, (Ackoff) • 2010, Project failure en masse: a study of loose budgetary control in ISD projects (Conboy)• Much is known - less is done ! • 1975 / 1995, The mythical Man-Month (Brooks)• Failure to learn ? CIOs - IS-Researchers • 1999, Learning failure in information systems development (Lyytinen & Robey) • MISQ, EJIS, ISR, JAIS, … © Jan Devos - 39
  40. 40. IS Research in SMEsIS Failures• Expectation failures (Lyytinen & Hirschheim)• Termination failures (Sauer)• IS project abandonment (Ewusi-Mensah)• IS project escalation (Keil)• Outsourced IS Project failure (Devos et al.) © Jan Devos - 40
  41. 41. IS Research in SMEsIS Failures• Expectation failures (Lyytinen & Hirschheim) • = the inability of an IS to meet a specific stakeholder group‟s expectations• Stakeholders: any group of people who share a pool of values that define what the desirable features of an IS are and how they should be obtained• - Correspondence Failure• - Process Failure• - Interaction Failure © Jan Devos - 41
  42. 42. IS Research in SMEs Expectation failures (Lyytinen & Hirschheim) • Correspondence failures • Process failures • Interaction failures © Jan Devos - 42
  43. 43. IS Research in SMEsIS Failures• Termination failures (Sauer) when all development or operation is ceased, leaving the stakeholders (supporters) dissatisfied• Project Runaways (Keil) escalation of commitment(runaways): continued commitment in the face of negative information about prior resource allocations coupled with uncertainty surrounding the likelihood of goal attainment Project Abandonment (Ewusi-Mensah) defined as a phenomenon that concerned with the anticipated failure of the project prior to its full implementation © Jan Devos - 43
  44. 44. IS Research in SMEsIS Failures Project Runaways (Keil) © Jan Devos - 44
  45. 45. IS Research in SMEsProject Runaways (Keil)Some IS projects never seem to terminate… “rather, they become like Moses, condemned to wander till the end of their days without seeing the promised land (Keider, 1974) © Jan Devos - 45
  46. 46. IS Research in SMEs Cover-Up Deaf, Dumb high Organization and Blind Organization Mum Effectbad news is Healthy Ostrichtransmitted lessfrequently than low Organization Organizationgood news low high Deaf Effect reluctance to hear bad news Blowing the whistle on troubled software projects (Keil, 2001)
  47. 47. IS Research in SMEs: Survey (Devos, 2008)IS Failures• Outsourcing IS Failures - OISF (Devos) • Moral Hazard: lost of trust • Adverse Selection: Lemon Markets Expectation failure Termination Failure Escalation Failure (Runaway projects) OISF © Jan Devos - 47
  48. 48. IS Research in SMEs: Survey (Devos, 2008)IS Failures 1994 1996 1998 2000 2004 Failed projects 31% 40% 28% 23% 18% Challenged projects 53% 33% 46% 49% 53% Succeeded projects 16% 27% 26% 28% 29% Source: Standish Group © Jan Devos - 48
  49. 49. IS Research in SMEs: Survey (Devos, 2008)IS Failures © Jan Devos - 49
  50. 50. IS Research in SMEs: Survey (Devos, 2008)IS Failures Bad experiences depend on organizational size Bad experiences depend on number of projects Number of projects depend on organizational size © Jan Devos - 50
  51. 51. IS Research in SMEs: Survey (Devos, 2008)IS Failures and the sourcing strategy © Jan Devos - 51
  52. 52. IS Research in SMEs: Survey (Devos, 2008)IT Governance• Since late 1990s• Lack of a clear understanding of the term• Influences the benefits generated by IT investments• Link with corporate governance (Sarbanes- Oxley)• Link with Strategic IT• A lot of methodologies from and for practitioners (Cobit, ITIL, PMBOK, PRINCE2, ISOxxxx, ...) © Jan Devos - 52
  53. 53. IS Research in SMEs: Survey (Devos, 2008)IT Governanceto direct IT endeavors, to ensure ITs performance meetsthe following objectives:- - for IT to be aligned with the enterprise and realize the promised benefits- - for IT to enable the enterprise by exploiting opportunities and maximizing benefits- - for IT resources to be used responsibly- - for IT related risks to be managed appropriately“Placing IT on the agenda of the board” (W. Van Grembergen) © Jan Devos - 53
  54. 54. IS Research in SMEs: Survey (Devos, 2008) Use of a formal method depends on organizational size © Jan Devos - 54
  55. 55. IS Research in SMEs: Survey (Devos, 2008) Use of a formal method and IS failures © Jan Devos - 55
  56. 56. Conclusions • Why do IT projects fail in SMEs? • Information asymmetry • Low IT managerial, technological and methodological capabilities in SMEs • How do IT projects fail in SMEs? • Opportunistic behavior • Deterioration of trust • Lack of control • How do SMEs manage there IT? • Absence of a formal intentional IT management • Why is there not enough IT Governance in SMEs? • IT Governance is not an SME concept • Lack of IT managerial, technological and methodological practices
  57. 57. Problems and solutions• From a vendor perspective ▫ Niches – heterogeneous target groups ▫ Low IT capabilities - Low expenditures ▫ Lot of IS failures ▫ Lemon Markets (the bad wipe out the good !)• From a customer perspective (the SME) ▫ Opportunistic behavior (E-tic charter) ▫ Winner‟s curse en Vendor lock-in ▫ Lemon Markets (IT has not a good reputation) © Jan Devos - 57
  58. 58. Problems and solutions• Winner‟s curse• Vendor Lock-in• Lemon Markets © Jan Devos - 58
  59. 59. Theory of Lemon Markets ICT ICT ICT © Jan Devos - 59
  60. 60. Theory of Lemon Markets• Nobel Prize Winner G. Akerlof, 1970 (Akerlof, G.A. (1970). „The Market for Lemons: Quality Uncertainty and the Market Mechanism‟. Quarterly Journal of Economics, 84(3), 488-500.)• a market with unbalanced information can lead to complete disappearance or to offerings with poor quality where bad products (lemons) wipe out the good ones• Popular economic grant theory • Used car market (lemons) • E-business, E-auctions, IT security, Grid computing, IT outsourcing• Devos J., Van Landeghem H. and Deschoolmeester D., (2010), An IS Theory: The Lemon Market, in Information Systems Theory: Explaining and Predicting Our Digital Society, Y.K. Dwivedi, M. Wade & S.L. Schneberger, to be published in 2011
  61. 61. Theory of Lemon Markets = €1 = €0.1 ICT © Jan Devos - 61
  62. 62. Theory of Lemon Markets €1 ? €0.1 © Jan Devos - 62
  63. 63. Theory of Lemon Markets €0.55 - €1 = -€45 €0.55 €0.55 - €0.1 = €0.45 © Jan Devos - 63
  64. 64. Theory of Lemon Markets €0.55 - €0.1 = €0.45 €0.55 €0.55 - €0.1 = €0.45 €0.55 - €0.1 = €0.45 © Jan Devos - 64
  65. 65. Theory of Lemon Markets €0.23- €0.1 = €0.13 €0.23 €0.23 - €0.1 = €0.13 €0.23 - €0.1 = €0.13 © Jan Devos - 65
  66. 66. Theory of Lemon Markets • A market place: buyers and sellers (internally/externally; individuals/firms): von Neumann-Morgenstein maximizers of Expected Utility • Information Asymmetry between transacting partners • Overall quality of goods and services offered is reflected to the entire group of sellers rather than on individual sellers • Lack of seller differentiation • There is incentive to market low quality (igniting condition) • High-quality sellers flee the market because their quality and reputation cannot be rewarded • Complete Market Deterioration
  67. 67. Theory of Lemon Markets independent Information Asymmetry + - + Adverse Trust Moral Hazard Selection - + - - Opportunistic Reputation Behavior - Perceived Quality
  68. 68. Who is serving SMEs?• Research (Devos, 2010) – Lemon Market ?• ICT Top 1000 → 484 ISV (Independent Software Vendors) Screening of websites (profile, product/service offerings, working methods) Checkpoint score 0 score l score 2 score 3 Median Not Minimal Moderate Strongly present CP1 - SME – focus 61,1% 12,7% 15,2% 11,0% 2 CP2 - Positive framing 37,8% 40,3% 12,7% 9,2% 1 CP2b - Negative framing 96,8% 2,5% 0,7% 0,0% 0 CP3 - References 22,6% 28,6% 14,5% 34,3% 1 CP4 - Methodology 41,7% 20,5% 20,1% 17,7% 1 © Jan Devos - 68
  69. 69. Who is serving SMEs?• Research (Devos, 2010) – Lemon Market ?• 77,4% reference selling• 34,6% make use of case studies• 38,9% of the ISV‟s is targeting also an SME market• 11,0% of the ISV‟s is only targeting an SME market• Large ISVs targeting LE (and sometimes SMEs)• Small ISVs targeting SMEs• SME-customers are mainly served by SME- vendors © Jan Devos - 69
  70. 70. Problems and solutions• OISF framework for SMEs• IS Success model for SMEs © Jan Devos - 70
  71. 71. Problems and solutionsAgency Theory • Principal = customer / determines the work • Agent = contractor: ISV (Independent Software Vendor) or ERP Implementer / undertakes the work • Contract = © Jan Devos - 71
  72. 72. Problems and solutionsAgent theory: constraints• Rational behaviour & expectations for both parties (bounded rationality)• Self-interest of parties (goal conflict between parties)• Outcome has effects on the Principals profit and success• Outcome is only partly a function of behaviours of Agent (risk aversion / risk neutral)• Agent has discretionary freedom due to asymmetric information • ex ante = uncertainties for Principal (Adverse Selection) • ex post = disadvantages for Principal (Moral Hazard) © Jan Devos - 72
  73. 73. Problems and solutionsAgent theory: IT and SMEs?• SME-Principal is less knowledgeable on IT than ISV-Agent• SME-Principal is confronted with high monitoring costs• SME-Principal is limited in his ability to monitor and judge the contractor‟s input and output.• Missing metrics and measures for programmers productivity and outcome © Jan Devos - 73
  74. 74. Problems and solutionsAgent theory: IT and SMEs?Some examples from real life cases: (Moral Hazard)• hidden characteristics Skills to develop & modify screens in an ERP package• hidden intention Agent want to use the custom made software for the purpose of developing a software package Agent is working on two parallel projects• hidden action Agent is correcting software errors during billable hours Agent is playing computer games during work hours © Jan Devos - 74
  75. 75. Problems and solutionsAgent theory: IT and SMEs?• 1 - Situation of complete (public) information• When the P has information to verify A behavior, then A is more likely to behave in the interests of the P.• → best solution: Behavior-based contract• reward is outcome independent !• 2 - situation of incomplete information (information asymmetry)• When the contract between the P and A is outcome based, then A is more likely to behave in the interests of the principal.• → second best solution: Outcome-based contract• reward is outcome dependent ! © Jan Devos - 75
  76. 76. Problems and solutionsAgent theory: IT and SMEs?Findings (Devos, 2007)• AT does not take trust into account, trust is important for avoiding OISFs• AT is not bidirectional: The Principal controls the Agent however: both parties are exposing opportunistic behaviour• Adverse selection is better explained by Prospect Theory & Lemon Market Theory• Structured controls are not sufficient to avoid OISFs• Avoiding OISFs is cumbersome © Jan Devos - 76
  77. 77. Problems and solutionsAgent theory: IT and SMEs? © Jan Devos - 77
  78. 78. Problems and solutions• Prospect Theory (Kahneman & Tversky)• A falsification of the EUT• - Theory of decision under risk• Daniel Kahneman* & Amos Tversky• “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty”• *Nobel Price winner 2002 © Jan Devos - 78
  79. 79. Problems and solutions• An experiment: lung cancer• Prospect 1 Survival Frame• Surgery: Of 100 people have surgery 90 live through the post-operative period, 68 are alive at the end of the first year and 34 are alive at the end of five years. 82%• Radiation Therapy: Of 100 people having radiation therapy all live through the treatment, 77 are alive at the end of one year and 22 are alive at the end of five years. 18% © Jan Devos - 79
  80. 80. Problems and solutions• An experiment: lung cancer• Prospect 2 Mortality Frame• Surgery: Of 100 people have surgery 10 die during surgery or the post- operative period, 32 die by the end of the first year and 66 die by the end of five years. 56%• Radiation Therapy: Of 100 people having radiation therapy none die during treatment, 23 die by the end of one year and 78 die by at the end of five years. 44% © Jan Devos - 80
  81. 81. Problems and solutions• Framing a proposal Müller-Lyer illusion © Jan Devos - 81
  82. 82. Problems and solutions• Propositions of the Prospect Theory• A person is risk averse for gains and is risk seeking for losses (reflectivity principle) This is also known as the certainty effect People favors risk aversion in the domain of gains and risk seeking in the domain of losses “Losses loom larger than gains” © Jan Devos - 82
  83. 83. Problems and solutionsThe value functionA person is risk aversefor gains (concavefunction)A person is riskseeking for losses(convex function) © Jan Devos - 83
  84. 84. Problems and solutions• Propositions of the Prospect Theory• A decision about prospects is a two phase process consisting of:• a editing or framing phase:• identical information is edited out (often a simpler representation)• a evaluation phase:• taken the decision on the highest “value” © Jan Devos - 84
  85. 85. Problems and solutionsApplication of Prospect Theory in IT Outsourcing for SMEs- Editing phase (= tendering phase) is often an extreme positive framing of a proposal on behalf of the ISV, to keep the SME (customer) in the “survival” frame • Stressing direct benefits (pseudo-tangible) • Denying the TCO concept (selling hardware, licenses, and …consultancy) • Simplification of ROI • Short project time • Fixed Price Contracts • Absence of requirement management (package contains “all” functionalities) • Avoid speaking about IS risks factors • Don‟t mention the burden of change management • Don‟t mention risk of scope creep • … © Jan Devos - 85
  86. 86. Problems and solutions Top 10 of IS failure risks 1. Lack of top management commitment to the project 2. Failure to gain user commitment 3. Misunderstanding the requirements 4. Lack of adequate user involvement 5. Lack of required knowledge/skills in the project personnel 6. Lack of frozen requirements 7. Changing scope/objective 8. Introduction of new technology 9. Failure to manage end user expectations 10. Insufficient/appropriate staffing Source: Schmidt, Lyytinen, Keil & Cule; Identifying Software Project Risks, 2001
  87. 87. Problems and solutions A Framework for IT Governance in SMEs • Building theory from case studies (Eisenhardt, 2007) ▫ Observations from previous literature ▫ Commons sense ▫ Experience • Multiple case studies (#5) ▫ Theoretically chosen, not randomly ! • Software Project Risks (Schmidt et al, 2001) ▫ Potentially important constructs • Pattern mapping Result the OISF Framework
  88. 88. OISF Framework for SMEs © Jan Devos - 88
  89. 89. Derived hypothesesDomain Nr Hypothesis (to avoid OISF)SME 1 SME-principals should have CEOs who are personallyprincipal committed to IS projects 2 SME-principals should have effective project management skills. 3 SME-principals should be convinced that an outsourced IS project is a joined endeavour between two collaborating partners and should to be managed towards an equilibrated balance between control and trustISV Agent 4 ISV-agents should have a profound capability maturity level on project management 5 ISV-agents should avoid all distrust mechanisms vis-à-vis SME principals © Jan Devos - 89
  90. 90. Derived hypothesesDomain Nr Hypothesis (to avoid OISF)Tendering 6 both parties should avoid fixed price contracts.andContracting 7 both parties should make renegotiable contractsIT artefact 8 specific IT artifacts should be made for SMEs with less sophistication and build up from their specific business requirements.Use 9 SME and ISV should work together in a spirit of collaboration and openness and keep the balance between control and trust equilibrated. © Jan Devos - 90
  91. 91. Conclusion of the Framework• Novel, testable and empirical valid• Unique SME perspective• Generic and not only suitable for a particular technology or artifact (ERP, CRM, …)• Complete cycle of plan-do-run-check(monitor)• Spelling out characteristics of IT Governance for SMEs © Jan Devos - 91
  92. 92. Conclusion of the Framework• Scientific challenge: Testing of induced hypothesizes (increase external validity)• Governmental challenge: Deploying Quality and Certification programs for ISV willing to serve an SME-market• Managerial challenge: Developing realistic models for IT Governance for SMEs © Jan Devos - 92
  93. 93. Future• Open Source Software (OSS) and Free/Libre/open source Software (FLOSS) ▫ alternative for ERP ▫ avoiding vendor lock-ins• Cloud Computing ▫ Complete outsourcing ▫ Utility computing• Social Networks ▫ Crowd sourcing ▫ SME networks• IT for the not-for-profit (government agencies, cities, culture industry, NGOs, …)• IT Governance in SMEs: expand our domain of knowledge © Jan Devos - 93
  94. 94. Future: IT Governance in SMEs IT Governance in SMEs: expand our domain of knowledge © Jan Devos - 94
  95. 95. Future: IT Governance in SMEs © Jan Devos - 95
  96. 96. Conclusions• SMEs constitute an important but separate unit of analysis• SMEs struggle with IT (as LEs do)• Lack of appropriate methods for running IT in SMEs• Lack of theoretical knowledge about IT phenomena in SMEs (failures, adoption, use, management, …) • Is „control‟ (always) the right way to do things ? © Jan Devos - 96
  97. 97. Questions ? © Jan Devos - 97