SB Program University of Jyväskylä Presentation of my Bachelor’s thesis on ”Key success...

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University of Jyväskylä

Presentation of my Bachelor’s thesis on ”Key success factors of small software firms” and an overview of article:”Implementing enterprise resource planning and knowledge management systems in tandem: fostering efficiency and innovation complementarity”

Presentation for ITK B54 – Research Seminar on Software Business

ByPeter Törnroos

20.5.2003

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Key success factors of small software firms - Outline

Introduction– Identifying key success factors– Importance of small businesses

Key success factors of small software businesses1. Flexibility2. The importance of leadership and software talent3. Networking4. Customer relations5. Operational efficiency

Challenges of small software businesses– Uncertainty– Internationalization– Corporate venturing

Literature and research of small businesses Conclusions, Criticism and Discussion

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Key success factors of small software firms - Introduction

This part of the presentation is based on my bachelors thesis of the same topic

In this presentation I will also bring up issues that I had to left out from my bachelors thesis and give an overview of small businesses

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Identifying key success factors

In my thesis key success factors are defined as factors that are critical for best performance, rather than performing good enough to keep alive (critical success factors)

There are many buzz words that have in some extend the same meaning– sticky factors vs. key success factors (same meaning according Ketelhöhn)– essential competencies, plain competencies, core competencies, spillover

competencies, protective competencies, parasitic competencies– are all these buzz words really needed?

There are KSFs for everything– product launch– brand management– anything that challenges an organization

In my thesis the context is small software businesses

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Importance of small businesses

Many governments see small software firms as important employers and builders of international competitiveness of future and therefore support their efforts (Ireland as a good example for supporting high-tech start-ups)

Small software businesses:– Bring healthy competition – Introduce markets new ideas and solutions – Software embedded in the products and services of other industries– Can occupy positions that larger firms can’t economically enter or dare

not go, expect by corporate venturing The importance of small software companies is indicated by an

Austrian study which states that micro enterprises account for 55,7 per cent and small-to-medium enterprises 32,2 per cent of the Austrian software organizations

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Nature of software business

Fierce competition Technologies change fast, industry evolves rapidly and in

unexpected ways High uncertainty over markets and technology

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Key success factors of small software firms

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1. Flexibility

One main reason for the success of small companies Possibility to adapt rapidly to new circumstances and tap

opportunities Identifying new opportunities and market niches When focusing on market one has to be able to change

the direction of the company when things go wrong

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2 The importance of leadership and software talent

small firms core employees consists of managers that usually own the company– Low hierarchies between employees– Important characteristics of business leaders

• previous experience on technology • knowledge of the industry • experience on entrepreneurship

– Successful leaders identify opportunities that others can consider as too high risks or do not believe in them

• developing new innovative ideas one must take risks– Downside of taking risks are mistakes

• mistakes can be corrected and they need to be corrected fast to steer the company in more successful direction

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3 Networking

The most important challenge for SMEs’ is their lack of resources– Resources can be gained through networking and partnering

Previous working relationships, families, friends and acquaintances are important sources of advice and information

There is great number of mechanisms of how to relate to external organizations

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Other key success factors

Importance of customer relations– The research of “tiger” SMEs in Singapore identified good client

and customer relationships as the sixth important KSF– Frequently satisfying customer needs (identifying and meeting)– Alliances and concentrating on few customers for better

communication Operational efficiency

– “Any system, like any argument, is as strong as its weakest link” (Ketelhöhn in “What Is a Key Success Factor?” )

– The resources that small software businesses have offer the opportunity to grow and perform well, but they have to be exploited thoroughly in order to achieve good results

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Challenges of small software firms

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Uncertainty

The uncertainty of markets presents challenges for high-tech SME’s and larger enterprises respectively

Uncertainty can be derived into two categories(1) The buyers can be uncertain, because they don’t have

experiences on the product and

(2) Certain market circumstances such as heterogeneity and chancing technologies set requirements for customer’s ability to handle information

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Sources for market uncertainty

What needs are fulfilled by the

technology?

How will the needs change in

the future?

Market uncertainty

Will there be market

standards?

How fast will the innovation spread?

How big is the potential market?

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Sources for technological uncertainty

Technological uncertainty

Does the product work as

promised?

Does the time of delivery hold?

Is the service of high quality?

Does the supply have any side

effects?

Does the know-how become

obsolete?

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Internationalization

Internationalization is brings both opportunities and a threats for small software businesses– Opportunities

• Larger market share• More sources for revenue:”thicker skin” against market ups

and downs (European companies face problems derived from small markets and cultural issues)

• Low barriers– Threats

• Brings competition to local markets from foreign companies

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Corporate venturing

Can be seen as way for larger companies to compete against smaller players– Ventures have the same structure as a small company would

have– Can compete in the same markets, which are usually niche

markets– Develop software for small market, can be highly specified user

group, such as professional software– Brings a high threat to smaller companies, because ventures

have the financial and other resources to back their business by the big corporate

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Literature and research of small businesses

There isn’t much research done from the small businesses point of view even though there is no arguing that small firms are important for the development of software business and economy

The issue of lack of previous literature is stated in many research articles that I have studied

Perhaps my master’s thesis will give a contribution to the field of small businesses– Preliminary topic: “Networking of high-technology firms: A

technology and resource based view”

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Conclusions

There are KSFs for everything: industry, strategies and company itself

KSFs have a substantial impact on the success of a company The most important KSF of small software firms is their ability to

adapt to no new circumstances rapidly Small software firms encounter challenges derived from their limited

resources– Can be tackled by networking (gaining resources)

Mastering only KSF isn’t enough for a company to be successful; they just prepare the company for the fierce competition

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Criticism on the thesis

KSFs that are identified are universal in nature and don’t reflect software SMEs in depth

KSFs are drawn from a wide variety of literature and they have a major impact on the way issues are discussed– literature of KSFs from other industries– nature of software business differs greatly from traditional

industries

I have only theoretical base to understand software business and I cannot in depth compare how these KSFs would be adopted to practical level of doing business

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Criticism on the thesis (cont.)

I identified an important KSF that is flexibility and adapting rapidly to new circumstances– literature I reviewed didn’t address this factor directly and this is why that

issue wasn’t discussed in depth in the thesis As the emphasis was on identifying KSFs the number of these

factors made it impossible to discuss each factor in depth Internalization is left out in order to keep the information manageable

for this sized thesis Keeping the talent in house can be a major challenge for a small

software firm, but the current situation in Finland seems to be that there are a lot professionals out there in the field of IT

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Discussion

Even though it is widely identified that SMEs are flexible there are also researchers that don’t agree– Naumanen, M., 2002. Nuorten teknologiayritysten

menestystekijät

Current situation of economy and the shape of IT field– more small businesses– more possibility to tap

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Implementing enterprise resource planning and knowledge management systems in tandem: fostering efficiency and innovation complementarity Authors

– S. Newell, J.C. Huang, R.D. Galliers and S.L. Pan

– The paper examines the simultaneous implementation within a single organization of two contemporary managerial information systems:

• Enterprise Resource Planning (ERP) and• Knowledge Management (KM)

– The study is done through interpretative single case method

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Introduction

In this part of the presentation I will discuss the conceptual framework and findings, leaving out the case description

I will emphasize the findings on organizational efficiency and flexibility of the study

Implementation of multiple systems is likely to produce effects that differ from implementing a single system

The focus of the paper is to investigate the simultaneous implementation of IS/IT concepts– ERP and KM

As both ERP and KM systems are currently being widely implemented across organizations in all probability they are implemented simultaneously or at least their implementations are overlapping

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Characteristics of ERP

Enterprise-wide packages that tightly integrate business functions into a single system with a shared database

Comprehensive software solutions that integrate organizational processes through shared information and data flows

ERP systems can play an important role in increasing organizational competitiveness through improving the way in which strategically valuable information is produced, shared and managed across functions and locations

ERP systems are promoted as systems that will improve organizational efficiency through both enhanced information capture and organizational redesign around defined best practices

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Characteristics of KM

KM systems emphasize how firms can enhance competitive advantage through more effective utilization of their knowledge assets– Achieved by free flow of knowledge across organizations

Different approaches to KM– Personalization and codification strategy

• Firm cannot be strong in both (80-20 rule)• Personalization: face-to-face communication• Codification: transferring documents through IT

– Cognitive and community approach• Cognitive: transfer of explicit knowledge where users have common

understanding• Community approach: sharing of tacit knowledge in case of multi-

disciplinary teams

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Characteristics of KM (cont.)

Distinction between personalization/community approach promote either efficiency or flexibility

First generation KM– Emphasize on dissemination, imitation, and exploitation

Second generation KM– Emphasize on education, innovation, and exploration– Focus shifts from the supply of knowledge to creation and

maintaining knowledge– The case company was very much within the frame of the

second company

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Background on efficiency and/or flexibility

The trade-off between efficiency and flexibility is perhaps the most enduring in organization theory

Mechanistic structures are characterized by high degrees of standardization, specialization and hierarchy; organic structures structures are characterized by low degrees of each of these aspects of structure– These opposing structures have formed the idea that

organization either had to focus on efficiency or flexibility There are now a few writers who haw suggested that it is

possible to be both efficient and flexible at the same time– Term used: ambidextrous (using both hands)

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Mechanisms for ambidextrous organizations Metaroutines

– Routines to standardize internal processes that focus on flexibility or innovation

– Non-routines to more specified processes Job enrichment

– Motivation potential is increased– Through increased autonomy and responsibility– Giving flexibility to routine tasks

Switching– Person is given time to spend on non-routine tasks and then switched back to

routine tasks Partitioning

– Divisions of tasks that are defined to certain group of the organization– E.g. R&D focuses on innovation while production department focuses on

efficiency

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Objectives of the companyObjectives and characteristics of the ERP and KM in Company A

Objectives and characteristics of ERP

Objectives and characteristics of KM

Replacing diverse legacy systems, so creating a common IT structure

Creating innovation communities including suppliers and retired staff

Creating a common productivity measure

Continuous learning and training

Restructuring production, logistics and warehouse divisions

Creating an intranet for storing and sharing information and knowledge

Centralized procurement Building strategic partnerships with suppliers

Efficiency improvement through improved information sharing

Improving innovation and flexibility through improved knowledge sharing and creation

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Research findings

Both systems were judged by organizational members to be successful

Within Company A the ERP and KM initiatives were complementary rather than contradictory

Each system was designed and implemented for clear managerial purpose– Managing organizational information to improve efficiency or

knowledge to improve innovation

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ERP and KM initiatives

– Implementation of SAP (the selected ERP system of the company) has drastically improved the time to produce and gather critical information for strategic decision making

– Help in effective coordination activities from SAP– The implementation of KM was found to facilitate the effective

and systematic exploitation and exploration of knowledge• Both intra- and inter-organizationally • Improved continuous learning from past actions• Organization of innovation communities created an

environment where products and processes were constantly under evaluation

– Involvement of retired engineers and suppliers

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Organizational efficiency and flexibility

Impact of implementation of ERP and KM to suggested mechanisms (transparency) in Company A

Partitioning– Pre-existed in Company A and had not really been influenced by

the ERP and KM initiatives– On the other hand efficiency and flexibility were achieved

achieved simultaneously by different divisions– The KM initiative had opened up opportunities for improving

flexibility even in divisions where efficiency was the primary goal

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Organizational efficiency and flexibility (cont.)

Metaroutines– Both ERP and KM appeared to promote the enactment of

metaroutines– Adoption of ERP enabled standardized activities of information

processing and management– New organizational processes were designed and implemented

to maximize the potential of ERP– The KM initiative transformed continuously non-routines to

routines while ERP stopped this process once the system was implemented and solidified processes

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Job enrichment– The ERP system hindered enrichment because it encouraged

process dependencies on pre-defined routines– The ERP system did not take into account non-routine tasks

• Maximized efficiency with the cost of flexibility– The KM initiative encouraged innovative communities to generate

knowledge on non-routine basis• Forming of various pilot teams for process and product

innovation

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Switching– The ERP system also hindered switching activities in some divisions

• E.g. The Product division has to have standardized activities to accomplish following advantages:

– Predictability

– Feasibility

– Efficiency

– The KM initiative encouraged switching in particular through involvement in training and participation in innovation communities

• Ability to exchange, reassess and refine what he had learned in routine work

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Conclusions

The study has demonstrated how a particular organization was able to promote both flexibility/innovation as well as efficiency

ERP and KM initiatives revealed that the two systems can be successfully implemented in tandem

While ERP emphasizes the improvement of information processing efficiency, KM can facilitate the simultaneous development of organizational knowledge exploration and exploitation capability

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Criticism

The study did not discuss in more depth that should different divisions implement both ERP and KM– E.g. is there any use for KM in the production department and if it

is implemented, what should be the proportion between the use of ERP and KM in daily routines and activities (80-20 rule)

SB Program University of Jyväskylä Presentation of my Bachelor’s thesis on ”Key success...

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