Essay: Influence of ICT on business performance

Introduction
This chapter provides an overview of previous research about the influence of information and communication technologies – savvy on firm performance, discuss on related theory from other researcher and generate the conceptual framework from literature.
2.2 Information and Communication Technology (ICT) – savvy
Information and Communication Technology – savvy or ICT- savvy are referring to people engage and proficient in use of information and communication technology in their daily lives. In workplace, ICT- savvy employee is indispensable for smooth work (Tore Stahl, 2017).
Reviewed of literature found that Information and Communication Technologies (ICT) rapidly changes and there are plenty researches related to ICT-savvy. Ong, Habidin (2016) via their research “The relationship between ICT adoption and business performance in Malaysia and Indonesia“, mentioned that in Malaysia the number of internet and mobile technology is increasing. According to Malaysia Communication and Multimedia Commission in 2017, the percentage of internet user in Malaysia are 76.9 % of population while report of percentage of Internet users in workplace are 58.7%.
The empirical literatures have provided insights and have also identified ICT – savvy are influence on firm performance from various stand point and with varying literally perspectives and insightful empirical findings.
Studies also have found that analysis of research “Helpful Business Value of Advance Bal Information System” made by Awais, M.; Irfan, M.; Bidal, M.; Samin, T. (2012) showed that over the past few decades, companies all over the world started to notice a great need for information systems in the business field. It was hardy possible to ignore the significance of benefits and a possibility to increase business performance through such an investment. If we notice that an ICT-savvy can help a business to save money, increase performance, thus creating more profits.
With the use of ICT, businesses can interact more efficiently and enables businesses to be digitally networked. Various researchers, academics and practitioners of business and computer science, believe that information and communication technology play an essential role in the growth and development of small business as this technology allows organizations not only substantially improve their production and business performance (Aral,Brynjolfsson & Van Alstyne, 2007; Nguyen, 2009; Kossai & Piget, 2013).
Besides that, research “Impact ICT on SMEs” by A. Yusuf (2013). This is a case study in Rwanda country found that ICT –savvy can simply help firms to quickly locate more customers, outsource best suppliers, and most importantly reach suitable business partners worldwide.
The main pulse in the business is manpower. Manpower with added value by adapts the ICT in workplace become asset to the business firm. Akpan-atata (2014) elaborates that employees need to be exposed from the earliest time possible to use ICT to enhance and improve their work experience. ICT-savvy mostly is contribution on positively firm performance. The use of ICT in business has enhanced productivity, encouraged greater customer participation, and enabled mass customization, besides reducing costs (Ali Abdishakur Yusuf, 2013).
2.2.1 ICT Awareness
ICT awareness involves knowing about the existence and importance of the ICT tools and their application. Potential ICT users should be enriched with a number of ICT awareness programmes in order to increase the usage of ICT facilities. This can be achieved through promotional programmes which include electronic media resources such as radio, TV and website; print media such as newspapers, magazines, newsletters and notice boards and organization of workshops, seminars, conferences and public lectures. ICT are playing a key role in the growth of customer relations management (CRM) practices. For example, staffs to communicate with clients, sales forces in the field are supplemented by interactive web sites and call centers. In addition, advanced database technology, world-wide web integration, sales force automation and multi-media-based front office applications are emerging as key elements of CRM (Yague M.J ,2011).
Kimutai and Nairobi (2016) mention awareness levels of ICT are both closely correlated on their influence on performance of SMEs. It should be appraised by the SME to ensure these are in harmony with use of ICTs in the SME. Also undertaking research on new developments on how best to equip personnel in the use of ICT will also benefit SMES by creating awareness on how best to utilize ICTs to the benefit of the organization (Petra Schubert, 2007).
2.2.2 ICT Usage
ICT usage is utilization on information and communication technologies in daily life (Hagsten, 2014). Abdishakur Yusuf (2013) mention that, in order to determine the scale of ICT usage and adoption, it was necessary to ascertain the extent of general ICT uptake so that the level of expertise and possible expectations could be gauged.
2.2.3 ICT Competencies
ICT competencies can be regarded as a special vocational prerequisite, a set of performance standards, and also the ability to complete tasks (Sandberg & Pinnington 2009).
2.2.4 ICT Capabilities
ICT capabilities enable to use ICT effectively and appropriately to access, create and communicate information and ideas, solve problems and work collaboratively (Lew Sok Leng, 2017).
2.3 Firm performance
Performance is considering ICT impact for efficiency, effectiveness, competitiveness, and intangible benefits (Liang, You, Liu, 2010; Consoli, 2012; Santos, Brito, 2012; Bayo-Moriones, Billon, Lera-Lopez, 2013). Firm performance is a capability of an organization to produce desired results. In business, firm performance measure of how well a small and medium enterprise achieves its purpose. It also is making a judgment on how organization achieves its purpose. It is a resultant of how the organization is managed to as to create value for customers and other stakeholders. This can be viewed financially and competitively resulting to the growth of business.(Kimutai & Nairobi, 2016).
In the late nineties, the publication in the literature of a variety of modeling, testing and the use of different measurement scales generated business performance in the first instance, a major contribution to the analysis and discussion of the performance and moreover, most empirical studies that established a significant positive relationship between information and communication technology and business performance (Kossai & Piget, 2012).
Thus, the first empirical studies that showed a positive relationship between information and communication technology and its ICT-savvy and business performance, were based on intermediate performance measures but not worked with other measures such as profitability (Barau et al., 1995). Meanwhile, Brynjolfsson and Hitt (1998) showed that information and communications technology and its ICT-savvy positively affect the productivity of firms, but had no effect on profitability.
Recently, other studies in the literature have demonstrated the existence of a significant positive relationship between the adoption and implementation of information and communication technology or ICT-savvy, and business performance (Baldwin & Sabourin, 2002; Melville, Kraemer & Gurbaxani, 2004; Bloom & Van Reenen, 2007; Koski, 2010; Tello, 2011; Bauer et al., 2012; & Ismail & Mamat, 2012; Kossai & Piget, 2012).
2.3.1 Productivity
Productivity shows a capability of an organization to produce desired results. In order to be productive, firms have to hire skilled managers to organize inputs, solve problems and plan for the future. As a result, the productivity of a firm depends on the way its production is organized. Gosen, J (2009) said that the efficient use of ICT in SMEs lead to increased organizational performance, productivity, and access to market.
Moreover, in the literature there is also publishing studies that establish an important contribution of ICT-savvy, both at the macro level and the micro level of firms (Jorgenson, Ho & Stiroh, 2008; Polder et al., 2009; OECD, 2009, 2010; Bloom, Draca, Sadun, Kretschmer, 2010). In such studies it is established that the information and communication technology, not only have a close relationship with economic activities, but also to productivity, employment, competitiveness and economic and financial performance of the companies (Kossai & Piget , 2012).
ICT implementation in workplace is a valuable factor to produce a quality work process. According to Sabrinah Adam & Batiah Mahadi (2016) in research “The Effectiveness of Knowledge Management Towards Organizational Performance of Internet Business in Malaysia”, in order to transform the nation into digital economy, there are numbers of ICT initiatives continued to be implemented when looking towards Tenth Malaysia Plan (Tenth Plan), 2011-2015 (Economic Planning Unit, 2011). However, in the Eleventh Malaysia Plan (Eleventh Plan), 2016- 2020, the government has emphasized on driving ICT in the knowledge economy through innovation and productivity to enhance competitiveness and wealth creation.
Some empirical studies confirmed the positive effect of ICT on company performance in terms of productivity, profitability, market value and market share. Findings highlight that for best performances it is important to align ICT investments with internal capabilities and organizational processes. Cited from Junaidah Hashim (2007) from “Information Communication Technology ( ICT ) Adoption Among SME Owners in Malaysia” mention that to achieve on firm productivity, small business in Malaysia need to catch up with new management and economic trends such as IT use, k-economy, and e- commerce.
A growing number of studies confirmed a positive and significant effect on productivity. ICT-savvy make services more easily tradable and increase productivity in manufacturing enterprises (Manochehri, Al-Esmail & Ashrafi, 2012).
Report from World Bank mention, in Malaysia, the introduction of personal computer technology in the early 1980s offered various facilities (and opportunities) to government departments in improving work efficiency and productivity. This is evident from the studies conducted by the Modernization and Management Planning Unit (MAMPU) of the Prime Minister’s Department. However, despite the increasing importance of the IT industry in Malaysia, very little attention was paid to understanding the IT acceptance or its adoption.
Various researchers, academics and practitioners of business and computer science, believe that information and communication technology play an essential role in the growth and development of business entity, as this technology allows organizations substantially improve their productivity and business performance (Aral, Brynjolfsson & Van Alstyne, 2007; Nguyen, 2009; Kossai & Piget, 2012), but also increase their competitive advantages (Ion & Andreea, 2008).
2.3.2 Competitive advantages
Competitive advantages are an ability to create more economic value than the marginal (break-even) competitor in its product market as declare by Santos and Brito in research “Toward a Subjective Measurement Model for Firm Performance” in 2012.
Mostly researchers also had been exploring the concept of competitive advantage in terms of organizational differentiation (Porter, 1985) or “resource-based” view (Peteraf and Barney, 2003). In order for domestic companies to reap competitive advantage, its IT and human capital resources must have value, rarity and be inimitable among rivals. Recent studies had extended the research scope of Peteraf and Barney (2003) by linking ICT with competitive advantage in their studies (Chang and Chuang, 2011; Jee-Hae et al., 2012; Jian-Liang, 2012).
Porter (1990) defines competitive advantage as the heart of a company’s performance. It reflects a company’s ability to offer consumers greater value either by means of lowering prices or by providing greater benefits and services that justifies higher prices. When it comes to ICT’s role in connection with company competitiveness, authors Alam and Noor (2009, 112-125) argue that ICT offers enterprises avenues to compete on a global scale with improved efficiency.
Global Competitiveness Reports of World Economic Forum comprises 12 key elements of competitiveness (Matei & Savulescu, 2012) where one of key is labor market efficiency. The use of large in information and communication technology (ICT) has been considered as a tool for organizations to deal with the ever growing markets and to create a competitive advantage in their business landscape.
Besides that, the significant increase in ICT‟s scale, complexity, strategic focus, connectivity and processing power in recent years has further heightened awareness of ICT‟s potential to positively affect an organization’s competitive position. Information and Communication Technology (ICT) is a multi-trillion dollars industry. It offers potential for significant organizational improvement and competitive advantage. (Wanjugu & Ngugi, 2015). Also, the adoption and use of information and communication technology allow companies to increase and strengthen all their innovation activities and more competitiveness (Koellinger, 2008; Polder, Van Leeuwen, Raymond & Mohnen, 2009; OECD, 2010).
2.3.3 Sustainability
Funk (2003) from article “Sustainability and Performance” address sustainable as development that meets the needs of the present generation without compromising the ability of future generation to meet their own needs. Sustainability involve the use of ICT contribute to the green company such as fewer use of printed material and less energy. This research has done among Ghana SME that is 80% use ICT in their business contribute to firm sustainability. (A.Asare, 2015).
ICT – savvy influences flexibility of the organizations and companies – companies that adopt ICT tend to perform better in business. Ollo-Lopez and Aramendia-Muneta (2012) stated that ICT adoption seems to have a positive effect on productivity, directly as well as indirectly, depending on the sectors and to have great potential to support a sustainable development.
2.3.4 Accessibility
Accessibility is a market access can be defined as the process to ensure that all appropriate patients who would benefit get rapid and maintained access to the brand, at the right price. The goal of business is to gain wider market accessibility domestically, internationally, and globally so that their business can be a legacy or sustainability in the world besides making a profit and achieve business growth.
Rao and Shiel (2003) explain that the fact that the diffusion of information and communication technologies (ICTs) is a prevailing reality in many parts of world it is particularly for developing countries held to offer remarkable opportunities for the alleviation of poverty and the creation of employment and have the potential to expand a country’s economy by making economic enterprises more accessible to local and global markets, improving access to market information, providing information for better and more competitive prices, and lowering transaction costs.
2.4 Recent study
In other side, studies in the eighties, developed primarily in U.S. companies, did not establish with certainty the relationship between information and communication technology, and business performance of organizations (Loveman, 1994; Brynjolfsson & Yang, 1997).
The effects of information and communication technology in the SMEs performance, also generated much debate in the literature among researchers, academics and practitioners in the field of management science and computing, as currently there are few studies published in which it has not been demonstrated very clearly the effects of information and communication technology and firm performance (Kossai & Piget, 2012).
2.5 Underpinning Theory
2.5.1 Resource – Based View (RBV)
Having ICT- savvy can be beneficial for business with adequate preparation prior to its implementation. They gain competitive advantage through online portal and others ICT applications and technologies. ICT utilization by ICT -savvy can be the resourceful medium or platform for Kolej Yayasan Pahang to gain competitive advantage. This situation can be supported by the theory of Resource- Based View (RBV). RBV stipulates that the fundamental sources and drivers of competitive advantage and superior performance are chiefly associated with the attributes of resources and capabilities, which are valuable and costly-to-copy (Barney, 1991).
Resource- Based View is a more recent theory that is widely embraced by many references such as Bharadwaj (2000), Wade and Hulland (2004), Kim et al. (2006), Rai et al. (2006), Wu et al. (2006), Ordanini and Rubera (2010); Lee, Koo and Nam (2010); Fahy and Hooley (2011); Rashidirad, Syed and Soltani (2012). RBV operates under the assumptions that the resources needed to conceive, chose, and implement strategies are heterogeneously distributed across firms whose differences remain stable over time (Barney, 1991). Resources can be broadly defined to include: assets, knowledge, capabilities, and organizational processes (Bharadwaj, 2000).
Bharadwaj (2000) proposed that if firms can combine IT related resources to create a unique IT capability, it can result in superior firm performance. The significant on ICT – savvy to Kolej Yayasan Pahang hopefully bring this business more productive; create competitive advantage, sustainability and accessibility. The “effective implementation of the task through great utilization of resources” is in line with the perspectives of Resource-Based View theory.
RBV theory rationalizes firm’s superior performance to organizational resources and capabilities. The resource – based view of the firm links the performance of organizations to resources and skills that are firm – specific, rare, and difficult to imitate or substitute (Barney, 1991). Hence, it is a theory that is mostly preferred by researchers in this area of study. This study consequently is based on this theory. The paper highlights the influence of ICT-savvy as pivotal determinants of firm performance in terms of productivity, competitive advantage and firm accessibility and examines the relationship between them
2.6 Conceptual framework
An independent variable is the one that influences the dependent variable in either a positive or negative way (Kothari.2008). This research proposes a framework to investigate on ICT-savvy and its relationship to the firm performance. This study identifies there are four independent variables (IV) contribute to dependent variable (V).
The four independent variables that have an influencing on dependent variables are ICT awareness, ICT usage, ICT competencies and ICT capabilities. Firm performance in term of productivity, competitive advantage, sustainability and accessibility are selected dependent variable for this study.
2.6.1 The influence of ICT awareness to firm performance
Awareness level of information technologies and communication is the literacy levels of ICTs among organizations and staff in the organization (Kimutai & Nairobi, 2016). Today, information literacy is inextricably associated with information practices and critical thinking in the information and communication technology environment’ (Bruce, 2002).
ICT awareness among employees is important to drive the objectives of the business. Studied from countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living – more than land, than tools, than labor. Today’s most technologically advanced economies are truly knowledge-based. World Development Report (1999), ICTs are of increasing importance in publics’ everyday lives and business operations and that presence will most certainly rise in the coming years.
2.6.2 The influence of ICT usage to firm performance
As cited by Premkumar (2003) from “A meta-analysis of research on information technology implementation in small business”, the utilization and commercialization of information and communication technology becomes more widespread throughout the world, the adoption of novel IT can generate new business opportunities and various benefits. Nowadays, both large organizations and small and medium-sized enterprises (SMEs) are seeking ways to reinforce their competitive position and improve their productivity.
Findings from a research “The relationship between ICT adoption and business performance in Malaysia and Indonesia” that computers are widely used among business in Labuan. 97% of the companies surveyed use computers. In fact, computers are used by large proportion of employees in most of the companies (Muhammad, Goh, Amboala, Hisyam, & Muhamad, 2012).
ICT’s literacy is needed in the organization. By nature, value, and availability of information have changed enormously, and this change impacts the way organizations, learn and work. To succeed, it is not enough to employ professionals skilled with ICT skills: The organization must know how to apply the knowledge of various ICTs, in this information society and create a niche for their line of business. There is a lack of information about the ICT literacy of organization and debate about how best to address this issue from an organizational level as well as the staff individual level(Kimutai & Nairobi, 2016).
Kimutai and Nairobi said again that literacy levels of ICTs resulting to organizational learning and knowledge in business, mastery on the use of ICTs in business is evident by assessing how often and flawless is the personal use of ICTs. Employees using ICTs or ICT – savvy and number of employees using the internet in the organization may be used to measure use but mastery is much better assessed by proficiency in use, and hence the need to review ICT support issues in the organization.
A research from small business in India, “Determinants of the adoption of information technology: A case study of electrical and electronic goods manufacturing firms in India” had identified a significant positive relationship between existing technological skills, and the degree of adoption and implementation of the company’s information and communication technology in the sector of electronic goods and electrical (Lal, 1999).
In sparsely populated areas, a high level of ICT usage may increase job opportunities and facilitate efficiency in the labor market while in more densely populated areas, measures to increase firm efficiency may be seen as threats to jobs as mention by (Hagsten, 2014).
ICT usage showed a positive relationship to firm performance via consistency, effective, efficient, level of integration of ICT use. Researcher, Chairoel and Pujani (2015) determine the scale of ICT usage and adoption, it was necessary to ascertain the extent of general ICT uptake so that the level of expertise and possible expectations could be gauged.
A study in the United Kingdom identified three distinct stages in information technology (IT) use in small businesses (Matthews, 2007). It combines a minimal usage of IT, several applications and machines in use and integrated various systems and constantly developed use of technology.
Analysis of research made by Awais et al. (2012) showed that over the past few decades, companies all over the world started to notice a great need for information systems in the business field. It was hardy possible to ignore the significance of benefits and a possibility to increase business performance through such an investment. It was quickly observed that an people who is fully utilize information system or ICT-Savvy can help a business to save money, increase the competitive advantage and improve performance, thus creating more profits (Abedalla, 2014).
However, Arendt (2008) asserts that there are issues related to the implementation of ICT in business. These issues have become the reasons why business entities choose not to adopt ICT in their business process and operation. The main issue that he brought up is the phenomenon of a digital divide.
Others source view defined digital divide as a gap between user who has been using the digital technologies and those who have not (Hargittai, 2003). By looking at this issue, firms are encouraged to hire someone who has knowledge on ICT to ease the productivity and business performance. Factors that cause the digital divide include the lack of proper knowledge, education and skilled owner-managers and employees within a firm. Moreover, he found out that the low quality of human capital is the biggest barrier that leads to lack of knowledge and skills. Therefore he suggests that, it is best to overcome the problem with enhanced IT skills and widen the access to ICT to encourage firms to adopt ICT in their organization.
Kossai, Lapa Suza and Roussel (2010) showed that the human capital that the organization has, is the primary determinant of the adoption and implementation of information and communication technologies in the electronics sector. Also, Machikita, Tsuji and Ueki (2010) analyzed in detail the adoption of information and communication technologies in SMEs in Indonesia, Philippines, Thailand and Vietnam, and concluded that firm size positively influences their adoption.
Meanwhile, Alam and Nour (2009) concluded that the measures taken by the Malaysian government authorities, that encouraged the use of firms information and communications technology, were significantly important for the adoption and implementation of the business. Also, Lal (1999) and Katrak (1997) had previously identified a significant positive relationship between existing technological skills, and the degree of adoption and implementation of the company’s information and communication technology thru resources in the sector of electronic goods and electrical SMEs in India.
2.6.3 The influence of ICT competencies to firm performance
Competencies can be regarded as a special vocational prerequisite, a set of performance standards, and also the ability to complete tasks (Sandberg & Pinnington 2009). Among these as far as the professional competencies expected by employers, technologies and skills can predict the job performance of technology management personnel (Hysong 2008).
In this study, the definition of professional competency is to engage in a professional task in the field of information technology, where the laborer possesses a set of abilities to successfully execute the task. ICT competencies includes the measurement of employee competencies of knowledge, technical skills, cognitive skills and their training on IT skills. Allison (1999) said that to fully harness the advantages of ICT-savvy in businesses, skills shortages in workforce need to be overcome. A skilled and knowledgeable work force is closely linked with successful implementation of technology.
Referring to Industry 4.0 implies significant changes of the production processes, and consequently of the work-tasks in Industry 4.0. This, in turn, impacts on the skills and competencies required of industrial workers (Kleindienst, Wolf, & Ramsauer, 2014). They said again that ICT can support humans’ physical work (interaction with real world), collaboration and cooperation (interaction with other humans and social entities), and cognitive work. Support for physical work in industrial settings is often addressed in automation and robotics literature.
Other researcher mention, the skills and competencies are important characteristics to define entrepreneurship as they are the vehicle of opportunity to derive higher level of creativity and innovation (Binnui & Cowling, 2016).
2.6.4 The influence of ICT capabilities to firm performance
ICT capabilities enable to use ICT effectively and appropriately to access, create and communicate information and ideas, solve problems and work collaboratively. Lew Sok Leng (2017) mention in research “Impacts of Information Technology Capabilities on Small and Medium Enterprises and Large Enterprises” knowledge acts as a foundation to ICT capabilities.
Others reference said that ICT capabilities is defined as an ability to use strategically ICT functions or applications for business purposes and competitive advantage (Johannessen,Olaisen and Olsen, 1999).
Employees as an asset in organization must have a high knowledge and skills in multiple field such as communication and ability to explore in ICT. According the research “Technology on Organizations” conducted by Ahmad (2014), new employees to the workforce are expecting collaborative technology as a basis for internal communications.
Previous studies have shown on strategic management and computing, a significant number of researchers, academics and managers are still questioning, on the factors that can best explain why some companies are more successful than others (Bauer, Dehning & Stratopoulos, 2012). One of the theses more accepted and published that best explain this questioning, are precisely those theoretical and empirical studies that establish that the variations in the resources and capabilities of the organizations, the characteristics of the industry or a combination of both, directly and indirectly affect business performance (Schmalensee, 1985; Chakravarthy, 1986; Hansen & Wernerfelt, 1989; Rumel, 1991; Hawawini, Subramanian & Verdin, 2003).
Therefore, the resources and capabilities possessed by firms are attributed to variations in business performance and heterogeneity among the main competitors of the organization (Wernerfelt, 1984) and the characteristics and structure of the industry is attributed to variation in business performance that primarily affects the competitiveness of companies in the industry, existing to new business entry and exit of these barriers, and the strong power that can achieve both buyers and suppliers of firms (Porter, 1979). The analyses of the information technology’s impacts on the business performance by applying Porter’s Five Forces Model of the competitiveness structure of an industry (Porter, 1979; 1980).