The subject area of the application of information systems to small business is a thoroughly interesting, yet relatively under-researched topic. Small business is an important part of any economy. In the United Kingdom, 25% of the gross domestic product is produced by small business, which employs 65% of the nation’s workers (Ballantine et al., 1998). In Canada, 43% of economic output is accounted for by small business, employing 50% of private sector employees (Industry Canada, 1997). Further, governments view the small business sector as that component of the economy that can best contribute to economic growth (Balderson, 2000). Given the importance of this sector of the economy, it is incumbent upon researchers and managers of small business to develop a better understanding of how information systems may contribute to the operation and growth of individual businesses as well as the overall sector. The objective of this article is to provide an overview of information systems used by small business. Research projects are presented that describe the current situation. Recommendations are then proffered for various stakeholders who should contribute to a more effective use of information systems by small business.
There does not seem to be a commonly accepted definition of a small business. Thus, individual researchers have adopted a definition for their specific projects. Some definitions include annual revenue, amount of investment, or number of employees. The definition mostly used is number of employees (Longnecker et al., 1997). The European Parliament (2002) has also adopted number of employees as a definition and has further refined the category. Thus, 0 to 10 employees represent micro businesses, small businesses include 10 to 50 employees, and medium businesses have 50 to 250 employees.
Beyond the size aspect of small business, there are others that differentiate them from large businesses. Stevenson (1999) has determined that from a strategic perspective, managers of small businesses tend to respond to opportunities presented by their environment in a multi-staged approach by committing a minimum of resources. Another differentiating factor is “resource poverty” (Thong et al., 1994). This term refers to the lack of time, finances, and human resources.
Laudon and Laudon (2001) suggest that an information system is “interrelated components working together to collect, process, store, and disseminate information to support decision making, coordination, control, analysis, and visualization in an organization” (Laudon & Laudon, 2001, p. 7). As indicated previously, managers of small businesses emphasize short-term decisions in their allocation of scarce resources. However, most information systems require a long-term plan with a significant one-time initial financial commitment. This conflict may result in inefficient investment in information systems, which in turn may negatively impact the financial situation of the small business.
Key Terms in this Chapter
Efficiency: The ability to accomplish a task with few resources.
Dependency: The requirement to rely upon another individual or organization.
Strategy: A business plan of action.
Effectiveness: The ability to accomplish a task with fewer errors.
Stakeholder: An independent party who may have the ability to impact another party.
Information Systems: Interrelated components working together to collect, process, store, and disseminate information to support decision-making, coordination, control, analysis, and visualization in an organization.