Information and Communication Technology for SMEs' Competitiveness

Literature Review

Barney (2002) discusses four approaches to measure the firm’s competitiveness. These measurements are firm's survival, stakeholder approach, simple accounting measures, and adjusted accounting measures. Porter (1985) indicates that a firm experiences a competitive advantage when “its actions in an industry create economic value and when few competing firms are engaging in similar actions.” De Wit and Meyer (1999) and Buffam (2000), indicate that a firm has a competitive advantage when it has the means to edge out rivals when competing for the favour of customers. Barney (2002) explains that a firm experiences a competitive parity when the firm’s action creates economic value applied in several other firms engaging in a similar action. An important goal of a business enterprise is to optimize shareholders’ returns. However, optimizing short-term profitability does not necessarily ensure optimal shareholders returns since shareholder value represents the net present value of expected future earnings. One of the techniques that reflect the shareholders return is the concept of the Balanced Scored Card (BSC) as an indicator for the firm’s competitive advantage.

Resource-based theories of strategy have become increasingly influential in the recent years and most writers take their inspiration from the work of Penrose (1957). Whereas Porter (1980) intended to see the competitiveness of the firm as a result of its market position, resource-based theorists do claim that if firms within an industry are doing well, the reason for this is their core competencies. Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies as explained by Prahalad and Hamel (1990). Prahalad and Hamel (1990) focus on the resources, capabilities and competences of the organization as the source of competitive advantage rather than the environment, as in the traditional approach. Penrose, in her work ‘The Theory of the Growth of the Firm (1959) is often credited with the idea of the resource-based view. Also, the work of Selznick (1957) stressed the role of distinctive competences and Chandler (1962) demonstrated the importance of organizational structure in the utilization of a firm’s resources. Rumelt (1997) adopts the resource-based view. Senge (1990) and Argyris (1994) stress the acquisition of competences through internal mechanisms of individual and collective learning.