How SMEs develop ICT-based capabilities in response to their environment

Abstract

The adoption of Information and Communication Technology (ICT) in Small and Medium Enterprises (SMEs) have some peculiarities that may depend on the combined effect of size and the competitive environment. In this paper, we use a contingency approach to explore how SMEs develop organizational capabilities through ICT investments in response to environmental conditions. A survey on 284 SMEs in Italy was conducted and data were analysed with regression models for testing seven hypotheses on the environmental influence on the development of ICT-based capabilities and the role played by firm size. The results show that the environment influences the development of such capabilities in a different way, depending on size. Within munificent environments, ICT-based capabilities are more diffused among larger SMEs, whereas under environmental complexity, this pattern is inverted, with larger SMEs exhibiting a more limited deployment of IT in support of both their internally and externally-oriented processes. Under environmental dynamism medium-sized firms tend to develop more internally-oriented ICT capabilities, but fail in reporting superior capabilities for managing external relationships. This paper contributes to understand the relationship between the environment and ICT investments in SMEs. Since the combined effect of size and the competitive environment may influence considerably the ICT investments in SMEs, this study investigates the organizational responses with respect to how SMEs use ICT to address their external environment. This focus provides a contribution to understand the challenges that SMEs are facing in the current technological and market environment, where changes in the ICT paradigm raise the level of complexity and dynamism and bring changes in competition levels that leave few resources for growth to SMEs.