ICTs on Innovation and Performance of Firms: History
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Contributor:
Michael Erdiaw-Kwasie
,
Peter A. Murray
,
Mohammad Afshar Ali
,
,
Eswaran Velayutham

Disruptive information and communication technologies (ICTs), such as the Internet of things, mobile technologies, big data, and artificial intelligence, continue to influence the firms’ operational environments and are dramatically reshaping and transforming existing business models.

  • information and communication technology
  • innovation
  • regional Australia
  • Start-ups

1. Introduction

Firms need to improve their internal capabilities to cope with external changes in this era of digitalization, globalization, and COVID-19. Disruptive information and communication technologies (ICTs), such as the Internet of things, mobile technologies, big data, and artificial intelligence, continue to influence the firms’ operational environments and are dramatically reshaping and transforming existing business models [1][2]. New business opportunities and models continue to emerge using ICTs [2][3][4]; however, not every business can leverage these opportunities via technology [5][6]. The mixed results in the business value of technology across firms are evident in the literature [7][8], which has led to an ongoing research debate.
Small and medium enterprises (SMEs) in Australia, which are classified as businesses with fewer than 20 and 21–200 employees, respectively, account for almost 99.9% of businesses. Small businesses alone account for 93.8% of all employing businesses, employ 44% of Australia’s workforce, and contribute 35% of Australia’s gross profit [9]. It is observed that firms are increasingly adopting digital tools across all aspects of their operations to improve their outcomes as a business, and SMEs are no exception [10][11][12]. Studies show that ICT can help firms integrate into global markets through reductions in border operation costs, facilitating greater access to vital innovation assets [13][14][15]. Yet, despite the benefits and opportunities digital technologies bring and the significant increase in uptake in recent years, many SMEs continue to lag in adoption [4][5][10][16].
During COVID-19, consumers moved dramatically toward online channels, and firms and industries have responded largely in turn. According to a recent global survey [17], firms in all sectors and regions have accelerated the digitization of their customer, supply chain interactions, and internal operations by three to four years due to the pandemic. Despite the spike in ICT adoption among firms, the performance gap persists [18][19]. Returns from ICTs have never been straightforward and are not limited to simple technological adoptions. Rather, certain confounding factors can leverage these returns, including firms’ innovation behavior, skills, leadership, and workplace culture [18][20].
Despite the large body of literature, gaps in the understanding of the performance effects of ICTs on regional firms exist. The present research fills these gaps by considering the case of the Western Downs Region in Australia. SMEs’ use and performance of ICTs in the Western Downs Region in Queensland represent an interesting case. The region is a local government area in Queensland, Australia, with a resident population of approximately 33,000 people and a gross regional product of AUD 3.9 billion as of June 2018 [21]. Although the accumulated economic performance of the region has improved over time, a close investigation of the data indicates that large disparities exist in terms of economic performance across different sectors, with a shrinking economic contribution from numerous sectors. This finding reflects major downsides in the region’s economy. The mining boom has masked the new reality for most economic sectors, with certain ones experiencing sluggish growth. These differences have implications for the labor market, equitable income, the well-being of the population, future growth potential, and the sustainability of the regional economy.

2. The Resource-Based View (RBV) Framework

The resource-based view (RBV) posits that some tangible (capital, assets, ICT, equipment) and intangible (entrepreneurial abilities, skills, patents, R&D activities) resources have certain qualities that help firms acquire a unique competitive advantage. Many scholars have applied the RBV across different organizational settings to indicate how the theory drives competitive advantage for firms [22][23][24]. For example, although start-ups face liabilities of newness, smallness, and are pandemic prone [25][26], the ones with a well-endowed stock of tangible and intangible resources can expand their product lines into new industries [27].
RBV has emerged as an influential theory of firms’ strategic choices to attain and sustain competitive advantage in a dynamic market. Studies show that RBV supports firms that face serious competition for their products and resources [22][28]. Although RBV has been applied across different organizational levels, the use of RBV in start-up studies has been gaining pace [29][30][31]. Given the resource limitations that often plague start-up firms, the RBV has been considered a useful framework for analyzing their resources that may offer them some competitive advantage [32]. The application of RBV in entrepreneurial firms has solely focused extensively on strategic positioning, economic growth, and internationalization of operations [33].
RBV is crucial for a firm’s growth, as it emphasizes the need for heterogeneity in the firm’s capability and resources. Studies indicate that proper alignment and rational use of critical resources impact a firm’s performance in terms of its growth, expansion, and survival [27][34]. Start-ups and nascent firms with better resource endowments have greater success rates. For example, with regard to US start-ups, the presence of higher start-up capital, better entrepreneurial skills in the form of education, and prior experience contribute positively toward firm survival, leading to higher competitive advantage outcomes [35]. Caseiro and Coelho [34] also explored the effects of business intelligence on start-ups’ performance in Europe. The research concludes that business intelligence capacities significantly impact start-ups’ network learning, innovativeness, and performance [34]. Such findings confirm that start-ups need a sufficient endowment of resources to survive and thrive.
However, to date, much of the research on RBV as a strategic advantage choice for growth has focused almost entirely on large incumbent firms [22][24]. Adding to this, the existing literature on RBV that does examine ICT as an innovation strategy for start-ups does not explore other important channels, such as organizational culture and ICT skills, through which returns from investment in new technology can be leveraged. Furthermore, there has been a lack of firm-level data that allow rigorous analysis of how ICT affects innovation in start-ups, particularly from a regional context. We, therefore, draw upon the RBV and start-ups literature to build the hypothesis of the research.

3. ICT, Innovation, and Firm Performance

Despite certain disagreements, firm-level studies generally provide compelling evidence of the strong positive effect of ICTs on performance [1][36][37][38]. The effect of ICTs on the improvement of external and internal communication plays a major role in the innovation performance of SMEs [39][40]. Furthermore, the use of broadband internet has been found to have a positive impact on innovation among SMEs [41][42]. Several studies have reported that ICT assists small businesses in increasing productivity, efficiency, and performance [37][43][44][45]. For example, Taştan and Gönel [46] observed a positive impact of ICT on firm-level productivity in Turkey using a novel longitudinal data set. Similarly, in a sample of Australian firms, Leviäkangas et al. [47] found a positive impact of ICTs on firm productivity.
In the context of the COVID-19 outbreak, much research has suggested that the adoption of digital technologies plays an important role in crisis responses, particularly among SMEs [48][49][50][51]. Guo [49] used a data set from a survey with 518 Chinese SMEs to examine the relationship between SMEs’ digitalization and their public crisis responses. The empirical results show that digitalization has enabled SMEs to respond effectively to the public crisis by making use of their dynamic capabilities. Elsewhere, Akpan et al. [50] shared that the absence and non-adoption of digital technologies in SMEs explain why business activities in most developing regions remained shut during the outbreak of SARS-CoV-2 and the community lockdown to contain the COVID-19 pandemic. The research suggests that strategies to survive the ’new normal’ imposed by COVID-19 and fierce global competition includes a successful adoption of advanced technologies.
The development of the business or strategic networks by start-up enterprises appears to facilitate activity toward important resources that are inclined to result in a strong commitment to organizational innovation, thereby increasing a firm’s performance [34][52]. Developing a strategic network, for instance, is equally valuable for small and large businesses [53]. Here, SMEs, especially nascent firms, may not always possess the resources they need to pursue innovation. Acquiring new knowledge that is offered through networking helps augment the knowledge gaps of existing SMEs through RBV, such that engaging in upstream and downstream networks may significantly lift a nascent firm’s performance [54]. That is, network connections enable new relational platforms for firms, thus harnessing innovation via learning and knowledge acquisitions [55][56][57][58].
Innovative capacity appears to be important to the success of family firms because it fosters entrepreneurial activities that can enhance profitability [58][59][60]. However, despite strong evidence of the positive link between innovation and firm performance, not all research is supportive of this conclusion [61][62]. This is because while some start-up firms quickly develop their product offerings, other nascent SMEs may need significant time developing their innovation and ICT skills, e.g., technology-driven intervention to create a new product, process, and business model [63][64]. Additionally, some nascent firms are business incubators and accelerators in protective intellectual property environments that depend on strategic networking and trust [65][66], given that different types of network participation, such as formal industry networks [67] and informal social interactions [68], take longer to develop [64] and to culminate in higher performance.
Moreover, the literature argues that SMEs are likely to boost their performance through improved internationalization because they have the advantage of economies of scale, competitiveness, improved resource utilization, better services, and a variety of government incentives [69][70]. There are also comparative advantage claims that SMEs with international exports are more likely to have improved performance than those without internationalization [71]. However, SMEs face a liability of foreignness when competing in international markets owing to information scarcity, lack of expertise, and managerial incompetence, thereby suffering from scale and resource disadvantages [72][73][74]. In addition, a number of studies have determined the positive contributions of an agile and flexible organizational culture on a firm’s performance [75][76][77]. This finding is consistent with previous studies that found firms obtain a competitive advantage through the implementation of innovative strategies to exploit opportunities. For instance, the more ambidextrous and nascent SMEs—firms that can simultaneously exploit existing knowledge while exploring new knowledge and ideas [78][79]—could be expected to foster increased innovation capabilities through the production, promotion, and implementation of new products and services. Recent studies have found that IT systems strongly influence ambidexterity performance when the right IT mechanisms are enabled [80] and that to fully leverage IT capability, SMEs need to invest in managerial and technical capabilities [81].
Recent Australian studies have claimed that inequalities exist in ICT activities in less technologically advanced communities compared with their metropolitan counterparts [82][83][84][85]. Taken together, these studies confirmed that demographic, political, and socioeconomic factors account for such a disparity. ICT inequality is evident between SMEs and large firms in rural Australia compared with those in major metropolitan cities [86][87]. ICT activity in metropolitan and other areas in Australia shows improvement, but compared to the situation elsewhere, inequalities in the access to ICTs in rural and remote areas continue to exist [88][89]. It is believed this is particularly alarming within a regional context and should be reversed through relevant policy settings by implementing industry and government initiatives, and by giving greater prominence to the role of ICT or technology-driven innovation. For instance, recent research shows that innovation outcomes, e.g., new exploration and SME performance, can be directly attributed to how SMEs acquire and use ICT applications, such as cloud services [90], while a positive influence has been found between SMEs’ strategic networks offline (in person) knowledge sharing among managers representing networked organizational actors and performance [58].

This entry is adapted from the peer-reviewed paper 10.3390/su14105801

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