THE LINK BETWEEN MANAGER INNOVATIVENESS AND ADOPTION OF ICT BY SMEs IN KENYA

Muyoyo, J. L. Faculty of Information Science and Technology, Multimedia University, Nairobi, KENYA e-mail: luballomuyoyo@yahoo.com

Abstract This paper reports an empirical investigation into the link between Managers innovativeness and adoption of ICT by SMEs in Kenya. ICT artefacts may enhance the social economic role of SMEs in developing countries. Whereas a possibility of a link between ICT adoption and SME managers innovativeness exists, no empirical studies have explored this link in the context of developing economies. To fill this gap, a 180 owner managers were surveyed for their opinion on the influence 13 ICT adoption predictors. Stepwise multiple regression results ranked managers innovativeness as the best predictor of ICT adoption among SMEs. The size of an SME, ease of credit acquisition and unintended social consequences of ICT adoption were other predictors. Interestingly, the empirical results show that previous findings that ICT knowledge and formal education, structure of the firm, the state of economy and ICT infrastructure, supplier, customer and competitor pressure were not regarded as predictors of ICT adoption by SME owners managers. This is reflective of reduced concerns about cost of ICT artefacts, improved connectivity at competitive costs and the basic ICT applications by SMEs owner managers. A key contribution of the work is the novel use of regression models to enhance our understanding of ICT adoption decisions by owner managers of SME. Further, the work provides a clear link between the intangible resource, innovativeness and the uptake of ICT. This link can be exploited by stakeholders, such as universities, governmental and non governmental agencies that seek to enhance the social economic role of SMEs in developing countries. Keywords Manager Innovativeness, ICT, SMEs, Kenya

1 INTRODUCTION AND RESEARCH OBJECTIVES This paper investigates the possibility of a link between managers innovativeness and use of Information and Communication Technologies (ICT) by Small and Medium Enterprises (SMEs) in a developing world context. This possibility could enhance the economic role of SMEs given that they provide the largest opportunity for employment and wealth creation in both developed and developing countries. Their enormous potential form the adoption of ICT by SMEs is evident from statistics showing that 50-70% of jobs in developing countries, 72% in Japan and 66% in the European Union (EU) are created by SMEs (Luetkenhorst (2004). In a country like Kenya SMEs are both socially and economically vital, employing over 5.1 million people and accounted for 18% of the GDP (IFC 2006). The potential which exists objective of this paper is to enhance our understanding of the factors that may enhance the is paper reports finding of an empirical investigation into the possibility of a link between manager innovativeness and ICT adoption by SMEs of this paper is to report It is against this background that it may be important to enhance our understanding of the possible link between managers innovativeness and adoption of ICT as a way of enhancing their economic and social role in Kenya.

ICT usage can transform them and enhance their levels of efficiency, competitiveness, and profitability (Laudon and Laudon, 2000). This would make them able to generate more employment and compete effectively in a global, knowledge and information based environment owing to their inherent nature as small firms (Luetkenhorst, 2004). According to Luetkenhorst (2004) SMEs have such as flexibility, speed of decision-making and proximity to customers that endear them as compared to large firms.

Studies undertaken in other countries suggest that the innovative adoption of ICT can enhance the economic role of SMEs and enable them to gain in several ways (OECD 2002). First, ICT can improve their information and knowledge management and subsequently reduce transaction costs, increase speed and reliability for both business-to-business and business-to-customer transactions. Second, ICT can provide effective tools for improving external communications and quality of services offered to established and new customers. Third, internal communications within the firm may be faster and lead to efficient management of firms resources. For instance, seamless transfer of information through shared electronic files and network computers is likely to increase the efficiency of business processes such as organizing incoming orders and preparing invoices. In particular, applications such as knowledge management systems and enterprise resource planning, allow firms to store, share and use their acquired knowledge and know-how. These applications have a lot of potential for internal communication and are more significant at the inter-firm level, being capable of reducing cost and increasing the speed and reliability of inter-firm level transactions (Moodley et. al. 2003). According to Moodley et. al., Internet-based B-2-B interactions can reduce information asymmetries between buyers and suppliers and build closer relationships among trading partners. Furthermore, adopting ICT innovations such as e-commerce tend to reduce transaction costs, increase transaction speed and reliability, thereby extracting maximum value from transactions (OECD, 2002).

To take advantage of these inherent features SMEs have to use ICT for innovations that benefit consumers, for them to become more productive and create employment opportunities.

While the use of ICT promises to enhance the role of SMEs in economic development, it is not known whether the SMEs operating in the Kenyan environment have adopted ICTs and what influences their decision to adoption ICTs.

STATEMENT OF THE PROBLEM SMEs are a major player in the global economy and an essential source of employment, innovation, entrepreneurship and growth (IFC, 2006). While it is acknowledged that adoption of ICTs has the potential to enhance this role (Yap, Thong and Raman, 1995) it is only recently that serious research interest has been shown on the relationship between SMEs and ICT (European Commission, 2005; Iacovou et al. 1995).

Despite the potential of ICT to enhance the developmental role of SMEs not much is known about the factors that may enhance or inhibit their adoption. However, investigation of ICT adoption by SMEs is extensive in south East Asia and Australia, where incidentally SMEs are quite successful in deploying ICTs that support e-business and e-commerce (Fink 1998; Gover and Goslar 1993; Herbert and Benbasat 1994; Julien and Raymond 1994; Thong and Yap 1995; Lawrence and Keen 1996; Raymond, 1990).

The literature identifies CEO/Owner characteristics, business characteristics and environmental factors as possible influences on ICT adoption by Kenyan SMEs. However, since the findings are obtained in different contexts they may not be generalisable to SMEs in Kenya. As pointed out by Gover and Goslar (1993) it may be argued that because the adoption of ICT is influenced by contextual factors a need exists to consider the influence of firm specific factors, managers characteristics and Kenyas unique socialeconomic environment on SMEs adoption of ICT. To address this gap, this study will establish the extent of adoption and the significance of various influences on the adoption of ICTs by SMEs in Kenya.

OBJECTIVES OF THE STUDY The purpose of the study was to examine the adoption of ICT by SMEs in Kenya. The objectives of the study are:

i) To determine the extent of ICT adoption by SMEs in Kenya ii) To determine to link between owner manager innovativeness and ICT adoption by SMEs

RESEARCH QUESTIONS This research was guided by the following questions:

i) To what extent have SMEs adopted the use of ICT in Kenya? ii) To what extent is owner or manager innovativeness significant to SMEs ICT adoption decisions

SIGNIFICANCE OF THE STUDY The study is significant for several reasons: Firstly, the findings will be useful to management of SMEs in identifying the most significant internal and external factors inhibiting or enhancing the adoption of ICT. By incorporating the findings in their strategic plans, SMEs may improve their efficiency and effectiveness and thereby compete favourably against larger businesses.

Secondly, governmental and non-governmental (NGOs) agencies interested in enhancing the economic role of SMEs will find the results important in assisting SMEs to exploit the power of ICTs. The government will find the results useful in providing an enabling policy framework on the use of ICT by SMEs. NGOs that seek to improve performance of SMEs will find the results important in the design of effective intervention strategies.

Therefore, with additional insight into the status and influence of owner or manager characteristics, firm characteristics, and the external environments, governmental and non governmental organizations will be better placed to ensure meaningful economic contribution from SMEs.

Finally, the focus on internal and external factors will enable future scholars to ascertain which specific influences to investigate in their search for a better understanding of how ICT can enhance the economic role of SMEs. The study will add to the growing body of literature on the adoption of ICT by SMEs in the developing world.

LIMITATIONS OF THE STUDY The current study focuses on establishing the status of and factors explaining the level of ICT adoption by SMEs. Although adoption is a multistage decision making process (Rogers, 1995) owing to its exploratory nature, it does not seek to examine the process of adoption. Further, while adoption studies seek to explore the diffusion in use of the adopted artifacts, the current study treats adoption and diffusion as one phenomenon, and does not distinguish it from diffusion. Thus it regards a decision to adopt an innovation as implying that the adopting unit would fully utilize it in its operations.

Consequently, it explores the extent of adoption by surveying the technologies in use and the perceived importance of internal and external factors on the decision by SMEs to adopt ICT artifacts. This work limits itself to the influence of owner/managers, firm characteristics and its external environment.

It does not focus on other internal influences such as the owner/managers computer literacy, the impact of ICT skills and training, age of the firm, and external factors like customers influences and perceived level of governmental support on the adoption decision.

Finally, the study was based on SMEs that operate in Nairobi and its environs owing to logistic and time constraints. However, since over 60% of the countrys GDP is generated in Nairobi and its environs, it may be assumed that factors influencing SMEs ICT adoption are reflective of the broader case in Kenya. SUMMARY The importance of ICT for SMEs role in economic development It argued for the need to understand the influence of internal and external factors on the adoption of ICT.

2 THEORETICAL BACKGROUND AND INFORMING LITERATURE This section reviews literature pertinent to the study. First, it outlines the theoretical framework that explains the adoption of key ICT innovations that support Electronic Data Interchange (EDI), E-Commerce (EC), E-Business (EB), Supplier Chain Management (SCM), and Customer Relationship Management (CRM) by SMEs. Next, empirical literature on the internal and external factors influencing ICT adoption in SMEs is reviewed. The literature is then distilled into a conceptual framework that guides the rest of the study.

Theoretical Framework An innovation is defined as an idea, practice, or object that is perceived as new by an individual or other unit of adoption (Rogers, 1995). Innovativeness is the extent to which an individual or other unit of adoption is relatively more eager in adopting new ideas than the other members of a system (Rogers, 1995). Adoption is the decision to make full use of an innovation as the best course of action available, while rejection is the decision not to adopt an innovation (Rogers, 1995).

Since ICTs are new to SMEs, they are innovations whose diffusion can be studied using the diffusion of innovation framework. Diffusion studies focus on how innovations spread among members of a social system and why some innovations spread more rapidly than others (Rogers, 1995).

In this study, the term ICTs will be used to mean all the digital technologies that support SMEs internal information production and communication and include the computing and networking technologies that support potentially transforming ICT innovations of EDI, e-Commerce, e-Business, SCM and CRM.

A number of theoretical models on diffusion of innovation exist (Dooley, 1999; Hall, Wallace, et.al. 1973; Rogers, 1995). According to Abou-Dagga and Huba (1997), the most commonly cited model is Rogers (1995). The work provides a valuable theoretical framework for understanding factors that facilitate or impede the adoption of an innovation in an organization.

Diffusion of Innovation (DOI) Theory According to Rogers DOI (1995), as information about a new innovation permeates a social system, its members form perceptions about adopting it based on their knowledge of the innovation and its attributes. Rogers (1995) theory proposes that innovation attributes collectively seek to explain the adoption process and the rate at which adoption occurs across members of a social system.

The first attribute of an innovation is its relative economic or social advantage. An innovation has a higher relative advantage if it offers more economic benefits such as an increase in money or wealth, saves times, or makes work easier than the innovation it seeks to replace. An innovation has a relative social advantage if it confers a higher social status than using the innovation it precedes (Rogers, 1995). In relation to this study, if SMEs perceive ICTs as offering them an opportunity to be more competitive, then they would have a relative advantage compared to preceding innovations.

The second innovation characteristic is compatibility. This refers to the degree to which an innovation is consistent with existing values, practices, and experiences of the adopters (Rogers, 1995). The DOI theory states that a compatible innovation is adopted faster because it fills a felt or unfelt need that is within the adopters existing norms.

The third characteristic is complexity. It refers to whether an innovation is relatively difficult to understand or use. According to DOI theory, an innovation that is relatively simple is adopted much faster. Aspects of an innovation that either worsen or eliminate complexity include the manner or format in which it is presented to

potential adopters. If ICTs are widely available and considered to be easy to use, then they would have low complexity and hence be adopted faster.

The fourth characteristic is trialability. This refers to the degree to which an innovation may be experimented with on a limited scale prior to adoption. An innovation that lends itself to trials is adopted much faster (Rogers, 1995). Trialability involves providing samples of the innovation for use, or its trial over specific periods of time. Accordingly, in this study, ICTs would be considered to have high trialability if SMEs can access ICTs and experiment with them.

The fifth characteristic is observability. This refers to the degree to which the results of adopting an innovation are visible to others. The higher the observability of an innovation, the more likely it is that the results of its adoption are obvious to the adopter and others in the social system (Rogers, 1995). The DOI theory, in addition to explaining the influence of innovation characteristic on the decision to adopt an innovation also explains the adoption decision process.

The second aspect of DOI theory is the innovation-decision process. This is the communication cycle that members of a social system follow as they confer with other members of their community, analyse available information and try to reach an agreement and make the decision to adopt or reject an innovation.

The innovation-decision process has five distinct stages of knowledge, persuasion, decision, implementation and confirmation. At the knowledge stage, one acquires or learns of the existence of the innovation and gains an understanding of its function. At the persuasion stage, one forms a favourable or unfavourable opinion or attitude about the innovation. At the decision stage, one engages in activities that lead to a determination to adopt or reject the innovation. This is followed by the

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implementation stage, where one puts an innovation to use. Finally, one undergoes the confirmation stage, during which favourable or unfavourable opinions formed at the decision stage are reinforced or changed.

The third aspect of DOI theory is adopter categories. This aspect describes relates to the innovativeness of members of a social system. Innovativeness is defined as the degree to which an individual or other unit of adoption is relatively earlier in adopting new ideas than other member of a system (Rogers, 1995). Rogers describes the innovativeness of members of the social system in five adopter categorizes of innovators, early adopters, early majority, late majority, and laggards.

This aspect of Rogers theory suggests that differences in the personal characteristics and the innovativeness of members of the social system affect the rates of adoption. Rogers (1995) proposes that the members of the five adopter categories are normally distributed when plotted on a graph over time. This forms an S shaped curve of the rate of adoption by the members of the social system over time. Innovators form the first 2.5%, early adopters, form the next 13.5%, early majority forms the next 34%. Late majority who form the next 34% and laggards form the last 16% of people in the social system.

In the current section, we outlined Rogers Diffusion of Innovation (DOI) model. In the next section we explore the convergence of computing and communications technologies and the resulting ICT innovations that promise to transform SMEs. Empirical literature on factors affecting ICT adoption is explored, from an SMEs internal and external environments point of view.

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ICT Applications in SMEs Section 2.3.1 explores the meaning and evolution of ICTs while section 2.3.2 examines the ICT applications resulting from the convergence of information and telecommunications technologies.

Evolution of ICTs The current ICTs have evolved from those that supported mainframe and standalone computers to networked systems. Initially computer technologies were used to produce information. However, today they are involved in its communication over networks.

The term ICT has evolved from the term IT.

The convergence of computing and communication

technologies have led to a whole range of applications that promise to enable SMEs compete on equal footing with large firms. IT has been defined variously as the technologies that enable computer based information systems (Laudon and Laudon, 2000) and the collection of computer systems used by an 12rganization (Turban et. Al. 2002). According to Boar (1997) IT are the technologies engaged in the operation, collection, transport, retrieving storage, access presentation, and transformation of information in all its forms.

For this study, the term IT would be defined as all the technology that is used by an organization to collect, process, and disseminate information in all its form. These include hardware, software and telecommunication devices.

The term ICT, which refers to the convergence of computing and telecommunications technologies (Laudon and Laudon, 2000), is preferred because it captures the innovative use of these technologies that promise to make SMEs as competitive as large firms. It is acknowledged that adding a communications channel, such as the Internets, intranets, extranets or other information services, significantly extends the capability of the computer (Laudon and Laudon, 2000). It allows it to be not only an inexpensive communications device but also facilitate interoperation of firms (Laudon and Laudon, 2000). As it is

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today, ICTs have the potential for information and innovative knowledge search and production, and of SMEs working with others firms irrespective of geographical barriers.

ICT Innovations for SMEs The ICTs that enable innovative applications are often configured in various ways by SMEs. The literature on ICT adoption by SMEs reports their use of ICTs that enable SCM, CRM, ERP, KWS, e-business and ecommerce (Adams et. Al. 1992).

E-mail facilitates written information exchange, storage and enables users to send graphical and multimedia information as an attachment to the body. Also it is known for its capability to enable asynchronous communication (Adams et al. 1992; Markus, 1994). Within SMEs, email has been used quite extensively for communication (Sillince et. Al. 1998). The reason for SMEs to use email is usually to replace facsimile and reduce communication costs (Sillince et al. 1998).

Facsimile communication, especially international facsimile transmission, is quite expensive and not of adequate quality for design purposes, where graphical documents are being transmitted. Email remains the most widely used ICT artifact for networked communications.

ICT systems that exploit intranets, client extranets and supplier extranets to re-integrate internal and external communications along the supply chain are the latest in a line of ICT adoptions. The adoption of intranets and extranets involve major organisational innovation (Windrum et.al. 2002). Intranets alter the flows and content of internal communications, while extranets alter communications between the firm and its clients and suppliers. When exploited successfully, these investments may improve SME competitiveness by either increasing the efficiency of internal and external communication and organization or by facilitating new or improved products and services.

ICTs facilitating EDI interconnect firms through a global computer network, principally the Internet, to facilitate computer-to computer exchange of electronic documents, such as purchase orders, advance

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shipment notices and invoices, without human intervention or human-readable documents. This innovative use of ICT eliminates manual re-keying of data, cuts order processing costs, increases data accuracy, improves cycle time, and makes just-in-time deliveries possible. Like the Internet, it is a standards-based system independent of the type of computer hardware and software employed (Wikipedia, 2009).

ICTs that support e-commerce facilitate the buying and selling of products and services electronically. Chong (2004) adds that e-Commerce focuses on the use of ICT to enable the external activities and relationships of the business with individuals, groups and other businesses. This has resulted into growth in the amount of trade conducted electronically. E-commerce draws on ICT innovations in electronic funds transfer (EFT), SCM, Internet marketing, online transaction processing, inventory management systems and automated data collection systems.

The adoption of ICT innovations that support e-business, e-commerce m-Business, and m-Commerce is seen as a way of enhancing the contribution of SMEs and their competitiveness in a global environment. It has been suggested that the adoption of ICT can enhance SMEs potential to generate employment and to compete effectively against large firms, in a global, knowledge and information based environment (Luetkenhorst, 2004).

Economic Contribution of SMEs The literature suggests that the economic significance of SMEs arise from their very characteristics (Thong and Yap, 1996). SMEs have a small management team, strong owner influence, limited resources, centralized power and control, lack of specialist staff, multifunctional management, limited market share, low employee turnover, reluctance to take risks, and avoidance of sophisticated software or applications (MacGregor, Bunker and Waugh, 1998; Yap, Soh and Raman, 1992).

Definition of SMEs SMEs are a heterogeneous and complex mix of economically active units (Martin and Matlay, 2001). They are small firms that are independent, owner managed, and have a small market share. The statistical

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definition of SMEs based on the size of the firm, as evident from the number of employees is common in SME literature. The European Commission (2004) defines SMEs as non-subsidiary, independent firms which employ less than a given number of employees. This number varies across national statistical systems. In the European Union it is 250 employees while in some countries it is 200 employees. However, the United States consider SMEs to include firms with fewer than 500 employees.

For the purposes of the current work, small firms are defined as those with fewer than 50 employees. Further, micro-enterprises have at most ten workers. Following the EU definition, this study considers SMEs as those organizations that have 250 employees and below. From an economic perspective, this definition is considered appropriate since Kenya and EU countries are both Organization for Economic Cooperation and Development (OECD) countries.

Economic Role of SMEs As larger firms downsize and outsource more functions the role of SMEs in the global economy is increasing (Johnson, 2005). For instance in the OECD countries 95% of enterprises are SMEs, and they account for 60% to 70% of employment (OECD, 2002). The economic significance of SMEs derives from the observation that most SME jobs are in the service sector. This sector accounts for two thirds of economic activity and employment in OECD countries (OECD, 2002). The key sectors in which SMEs create employment include wholesale and retail trade, the hotel and restaurant business, communications and business services, and construction. Further, SMEs also account for a high percentage of manufacturing firms in many OECD countries and provide at least half of OECD manufacturing employment (OECD, 2002).

SMEs also create jobs in technology-intensive industries such as ICT and biotechnology. They offer services relating to computer software and information processing, research and development, marketing, business organization and human resource development. Windrum et.al. (2002) explains that increased outsourcing by major manufacturing firms, combined with new technologies has allowed SMEs to win market niches, and has led to 10% annual growth in these knowledge-based services in recent years.

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It has been further suggested that in addition to employment generation SMEs influence growth in productivity and the economy, through the competition inherent in the birth, death, entry and exit of smaller firms. For instance, according to Johnson (2005) less than one-half of small start-ups survive for more than five years and only a fraction develop into the core group of high-performance firms which drive industrial innovation and performance. Thus it may be argued that if governments provide an enabling environment for SMEs to play this additional role through ICT policy reforms that facilitate employment creation and growth, then the impact may be felt in a wide range of sectors represented by SMEs.

An important source of SMEs economic contribution is their innovativeness. For instance, some 30% to 60% of SMEs in the OECD countries are characterized as innovative in the broad sense (OECD, 2002). While, on average, they are less likely to conduct research and development (R & D) than larger firms, they are more likely to innovate through creating or reengineering products or services to meet new market demands, introducing new organizational approaches to enhance productivity, or developing new techniques to expand sales.

There is a subset of high-growth small firms, which are exceptional innovators. These SMEs are located in the top 5%-10% of all growing firms (OECD, 2002). In most countries, where their job creation rates exceed those of larger companies, SMEs tend to be technology- based and conduct Research and Development.

It can be argued that their economic role depends on the use of ICT. However the literature seems to suggest that their ability to exploit ICTs innovations, which can enable them to compete with large firms at a global level depends on managers and organizational characteristics and general and specific external factors.

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Empirical Literature on Factors Influencing Adoption of ICT by SMEs Parker and Castleman (2007) concluded, after an extensive analysis of literature of ICT adoption, that factors influencing adoption can be categorised as environmental, technological, organisational and owner characteristics.

The literature considers environmental factors to include pressure from competitors, customer or suppliers, vendor support and government support or regulations, while technological factors relate to ICT complexity, cost and compatibility. On the other hand, organisational factors include size, staff knowledge of ICT supporting E-Business, industry or product/service type, and owner characteristics include education, attitude toward technology, innovativeness and knowledge of ICT supporting E-Business (AlQirim, 2005; Ching and Ellis 2004; Chong 2004; Premkumar 2003 and Wymer and Regan, 2005).

Previous research has revealed conflicting support for the significance of these factors. For example, some surveys investigating barriers found that competitor pressure was positively correlated with adoption of ICTs that support E-Business (Wymer and Regan 2005) while others found this factor to be insignificant (Al-Qirim 2004; Gemino, Mackay and Reich 2006). Other surveys found financial constraints to be a significant factor (Wymer and Regan 2005), although others did not find this factor to be influential (AlQirim 2005; Grandon and Pearson 2004).

The objective of the current study is to examine the strength of each factor in explaining small firm adoption decisions and the relationship between the factors. To examine the relative influence of the various factors that determine SMEs adoption of ICTs, the current study categorized them into internal and external factors. Similar categorisation has been used in previous work (Lakhanpal, 1994; Yap, 1986; 1990).

Lakhanpal (1994), Yap (1986; 1990) suggest that the adoption of ICT by SMEs result from factors beyond and within their control such as firm specific customer, supplier and competitor influences, and generic economic, technological, political and social environmental influences.

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According to Lakhanpal (1994) these environmental factors are external factors, being factors outside the control of organizations and business owners. Yap (1986; 1990) further categorises external factors into general and specific factors. General factors include social, economic, legal and cultural factors and specific external factors include customers, suppliers and competitors.

Internal Factors Previous studies suggest that factors influencing use of various ICTs in SMEs can be either controllable or not controllable by the SME. Internal factors, over which the SME has control, include manager /CEO characteristics and business characteristics. These contrast factors which may have no influence over factors such as social-political and economic environment or on competitors, suppliers and customers.

Owner / Manager Characteristics In most firms the owner provides the SME with capital while the manager is responsible for managerial functions of planning, organizing, executing, and controlling (Stoner, 1994). Within most SMEs, the same person often assumes the role of owner and manager and for purposes of this work it is assumed that the owner is also the manager.

The characteristics of the owner manager have been reported to influence the adoption of ICT by small firms since the owner is the principal decision maker (Burke 2005; Ching and Ellis, 2004). The characteristics often cited in literature include age, educational level (Burke 2005; Ching and Ellis 2004; Fillis, Johansson and Wagner 2003), gender (Fillis, Johansson and Wagner 2003), management experience (Burke 2005), attitude toward change, degree of determination or drive and attitude toward or determination to gain new skills and knowledge (Fillis, Johansson and Wagner 2003).

In addition to owner characteristics, other qualities that may influence the uptake of ICT include degree of cosmopolitism or tendency to be outward-looking (Ching and Ellis 2004). It is argued that, if high, it might result in market-oriented activities such as gathering competitor and customer information to inform

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strategy (Jones, Hecker and Holland 2003). Further, innovativeness, creativity and attitude toward risk also influences the decision (Al-Qirim 2005; Fillis, Johansson and Wagner 2003; Wymer and Regan 2005). Piscitello and Sgobbi (2004) explain that if an owner is more conservative then the owner is more likely to maintain the status quo.

Finally, industry experience and knowledge may influence the adoption of ICT by an SME (Alexander, Pearson and Crosby 2003; Dholakia and Kshetri 2004). Together, the experience, innovativeness, creativity, and personal characteristics all serve to influence the process of deciding on adoption of ICT by the SME. This process is based on a mix of rational and non rational or strategic considerations that involves significant input from the owner/manager.

It is argued that since the owner/manager needs to allocate the resources and devote significant time and effort to manage the ICT adoption process, the success of the adoption depends on his/her support (Cragg and King 1993; Fink 2002; Lanz 2002; Mehrtens et. Al. 2001; Mirchandani and Motwani 2001). This support comes in the form of their knowledge of IT and the perception of the benefit obtained from using ICT (Attewell 1992; Chesher and Skok. 2000; Cragg and King 1993). Poon and Swatman (1997) agree and point out that managerial perception of ICT benefits and commitment and are key features in the process of ICT adoption and implementation.

On the other hand, limited knowledge of ICT could be a barrier in adopting ICT. Owner/manager of the SME might be confused with the various choice and rapid development of ICT (Venkatesh and Brown, 2001). Adequate knowledge of ICT adoption and its associated impact toward 19rganization might also discourage owner/manager (Agarwal and Prasad 2000; Love et. Al., 2001).

Other than IT knowledge, the general level of education has been reported as a key influence on ICT adoption studies. For instance it was found that the decision to network was associated with the level of education of the CEO (Donckels and Lambrecht, 1997). Also, educational level of the CEO was found to

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be significantly associated with decisions to become part of a formal networking arrangement (MacGregor et.al. 1998).

Another demographic variable considered was the age of the CEO. Mazzarol et.al. (1999) found that the gender of the CEO was significantly associated with the level of adoption of ICTs supporting e-commerce. Research conducted by Palvia and Palvia (2000) suggest that the age and experience of the Owner/CEO is the single most important factor governing successful ICT adoption. In addition to age and experience of the owner, the findings of the study suggested that gender is a statistically significant variable. These studies are supported by the findings of Venkatesh et.al. (2003).

Other than the educational background, age and the level of IT knowledge, previous studies have also explored the influence of manager/CEO attitudes on the adoption of ICTs. Thong and Yap (1995) point out that SMEs that have a CEO with a positive attitude, and who is innovative and knowledgeable about IT are likely to adopt new ICT. For instance, Matlay (2000) and Culkin and Smith (2000), suggest that how reactive or proactive an owner/managers is to rapid technological changes is crucial to ICT adoption and implementation.

Collins-Dodd (1999) observes that within the context of SMEs, there is need to respond quickly to environment changes and organizations lacking this leadership are disadvantaged. Timely adoption of new technology requires making decision based on managerial skills and relevant experiences. It is acknowledged that the marketing of technological innovation to SME owners/managers is difficult owing to psychological factors such as their emotion, attitudes, behavioral intention and perceptions (Harker and Van Akkeren, 2002).

They found that owner / manager psychological characteristics such as perceived benefits of PDAs, computer literacy, perceived control, and their mistrust of the IT industry were barriers to adoption of IT by SMEs. Simes (2002) agrees, noting that lack of awareness and knowledge of the benefits that PDAs can provide in e-commerce promotion, sales and procurement, by SME owners/managers, may explain their

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non-adoption of the ICT artifact. Simes (2002) study indicates that lack of ICT awareness and knowledge, and inadequacy of ICT-capable and literate manager / workers. Thong and Yap (1995) concluded that small businesses that had innovative CEOs possessed more positive attitudes toward IT adoption. Such innovative CEOs may play an important role in applying new

technologies to meet customer needs by introducing new products. Acs and Audretsch (1990) agree noting that small firms produce innovations with significantly higher productivity that are more cost-effective than large firms.

In addition to owner innovativeness, attitudes, IT knowledge and level of education, the managerial culture as evident in their support of IT innovations may influence the use of ICT in SMEs. In large organizations the importance of top management support in facilitating successful ICT adoption is established (Cerveny and Sanders, 1986; Earl, 1996; Daft, 1998). In SMEs the support of CEOs, has been the focus since most small businesses are managed by an owner that also acts as the CEO.

Additionally, within SMEs flat organizational structure, the CEO typically performs multiple roles in the daily running of the business, takes the majority of decisions and has full control over the organizations resources (Raymond and Magnenet 1982; Steinhoff and Burgess 1986).

CEO support is therefore essential for establishing appropriate ICT goals, identifying critical business information needs and allocating requisite financial resources. Delone (1988) and Yap et. Al. (1992) have highlighted the importance of CEO support in the implementation phase. Also, dependence on the CEOs support to drive the adoption of internet technologies and subsequent development of e-business solutions has been highlighted in empirical research conducted by Igbaria et. Al. (1998) and Premkumar and Roberts (1999).

Evidently, manager/CEO characteristics such as age, level of education, IT knowledge, innovativeness, and nurturing of an IT supporting culture may influence the adoption of ICT by SMEs.

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In addition to owner/CEO characteristics, another set of influences, over which the SME has control are the business characteristics. Blackburn and McClure (1998) supports the view that owner-managers attitude, knowledge and experience, in addition to the overall managerial approach to the business, is often more influential than business size and sector in understanding the use of ICT. Business Characteristics SME characteristics such as size, sector, extent of centralization, formalization, turnover, and structural sophistication of the firm are potential influences of ICT adoption in SMEs (Gagnon, Sicotte, and Posada, 2000; Zmud, 1984; Nilakanta and Scamell, 1990; Martin and Matlay, 2001). Further, Raymond and Magnenet (1982) have suggested that other SME characteristics, such as firms dependency on a few key individuals often create important challenges for ICT uptake.

The literature acknowledges that company size is related to the probability of ICT adoption (Zmud, 1984; Nilakanta and Scamell, 1990). They suggest that smaller companies are less likely to adopt ICT than large firms which require a higher level of information and technology. Studies focusing on ICTs that supports E-Commerce seem to suggest that the most cited reasons for ICT adoption tend to be those based upon the companys size (Van Beveren and Thomson, 2002). Perhaps as is suggested, as a company grows in size, it becomes more difficult to communicate with customers and this leads to the adoption of E-Commerce (Daniel et. Al. 2002).

Lucchetti and Sterlacchini (2004) also support the significance of size in the context of manufacturing firms. According to them, the adoption of production integrating ICTs depends on the firms size, the extent of productive linkages with other firms, the use of advanced information technologies in production and the educational level of the labour force.

While ICT adoption is seen as being dependent on size, the influence of the sector in which an SME operates has also been reported to be significant in ICT adoption decisions. Although the work of Bodorick et al. (2002) did not focus specifically on SMEs it suggests that E-Commerce readiness and adoption are

22

likely to vary by industry sector. Fallon and Moran (2000) found significant links between the size of a firm in terms of number of employees and number of sites, and the intensity and/or level of ICT activity, but showed that ICT usage varies not only across sectors but also within constituent sub-sectors, perhaps due to size variation, measured as number of employees, turnover level or asset value.

Those micro-businesses that specialize in the provision of business services, particularly knowledge intensive, service 23rganization, are more likely to adopt ICT than similar sized manufacturing firms (Prez-Esteve and Schuknecht 1999). Knowledge-intensive industries rank highest in their use of external networking technologies, such as company websites, use of external e-mail, EDI and online selling systems.

Technology intensive manufacturing sectors, like chemicals, vehicle components, defense and aerospace, and service sectors, such as advertising, and insurance services, are significantly more likely to make frequent use of external networking applications than are clothing, road haulage and retail sectors (Spectrum/DTI, 2000).

Martin and Matlay (2001) found that micro-businesses that focus on providing business services were more likely to adopt ICT than similar sized manufacturing firms. In addition to the type of sector, the lifecycle of an industry or its maturity is reported to have an effect on ICT usage, with usage likely to be higher in new sectors than in mature sectors.

For instance Daniel and Myers (2000) found that the older the SME, the less likely they were to use ECommerce. Firms in mature industries face particular challenges posed by the introduction of new technologies and practices that displace pre-existing technologies and practices.

Decisions to adopt ICTs that support E-Business are also influenced by supply considerations. An interesting finding is a pronounced preference for for ICTs that support EDI and external e-mail in different sectors. Road haulage, clothing, vehicle components and insurance companies were found to strongly favour EDI systems whereas advertising, chemicals and defence industries have a pronounced use of e-mail

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for external communications (Spectrum/DTI, 2000). Other firm characteristics that influence ICT adoption, other than size and sector, that has been the focus of ICT adoption studies relate to the structure of SMEs.

Organizational structure and the number of employees has also been found to influence ICTs that facilitate E-Business (Al- Qirim 2005; Del Aguila-Obra and Padilla-Melndez 2006; Dholakia and Kshetri 2004; Wymer and Regan 2005).

For example, Levenburg (2005) and Burke (2005) found that as a firms size grows, its 24rganizational structure and processes become more complex, in terms of job specialization, formalization, and more coordination of business functions and larger number of customers, which suggests that ICTs supporting EBusiness could help solve associated business goals. Del Aguila-Obra and Padilla-Melndez (2006) unsurprisingly found that firms with geographically dispersed staff were also more inclined to adopt EBusiness, because it helped solve the firms distributed communication needs.

In addition to its structure, the firms degree of decision making centralization, which also relates to its hierarchical structure, also influences ICT adoption. SMEs are usually flatter organizations with more centralized decision processes (Gagnon, Sicotte, and Posada, 2000). Small organizations have less complex organisational structures than larger organisations and hence have lower internal requirements for extensive communication technologies. Consequently they have smaller volumes of information to be communicated and stored and hence they perceive less compelling need to acquire ICTs to manage information (Lange et.al. 2000; Mullins et.al. 2001).

Relatively flat owner-led SME organizational structures are said to have advantages in terms of their ability to adapt to market changes when compared to more complicated and hierarchical structures of large organizations. On the other hand, large organizations are said to enjoy significant advantages in terms of access to financial and human capital resources (Dodgson and Rothwell, 1991; Vossen, 1998).

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Wymer and Regan (2005) report that the most commonly cited resource constraints are cost of the technology and lack of applicable in-house knowledge or experience (Smallbone, North, Roper, and Vickers, 2003). Resources, especially financial resources, are needed to finance the adoption process (Chau 1995; Utomo and Dodgson 2001). Since SMEs have limited financial resources, it might be difficult to obtain desired ICT products. Limited financial resources also forces SMEs to be very careful in selecting and implementing ICT.

This limitation manifests itself in the effort of SMEs to prioritize which features of ICT solutions should be selected. An incorrect ICT investment decision can have significant financial consequences for SMEs and in extreme condition it may lead to a bankruptcy. The associated high risk of ICT investment could discourage some owner/manager to adopt ICT for their company (Agarwal and Prasad, 2000; Love et. Al. 2001).

Limited financial resources also mean that SMEs might not be able to obtain necessary external expertise such as consultant or additional training from the vendors (Attewell 1992; Cragg and King, 1993). SMEs would have to rely on the availability of government assistance or voluntary consultancy from higher education institutions (Utomo and Dodgson, 2001). The scale of SME operations makes them be more exposed to cash flow problems (Fariselli et. Al. 1999; Foong, 1999; Premkumar and Roberts, 1999).

First, they have fewer resources for sophisticated management of financial instruments. Second, they do not enjoy economies of scale and market power enjoyed by large organizations. Subsequently, SMEs do not enjoy the preferential interest rates offered by banks to larger organisations.

The stronger financial constraints facing smaller organizations is a key factor, it is suggested, explain why smaller companies tend to be more sensitive to cost and why they have longer replacement cycles. Further, since SMEs often operate on small margins, any technology that does not translate directly and quickly into a competitive advantage may not be taken up by an SME (Gagnon et al., 2000).

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In the current study, firm specific variables considered include business size, structure, turnover, profitability and ease of credit acquisition. In addition to these firm specific factors, the imposition of conditions by larger trading partners, who tend to be more powerful due to their extensive resource base, have also been reported to influence the uptake of ICTs that support interoperation (Blackburn and Athayde, 2000).

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External Environmental Factors It has been suggested that the adoption of ICT by SMEs result from factors beyond and within their control) such as firm specific customer, supplier and competitor influences, and generic economic, technological, political and social environmental influences (Lakhanpal, 1994; Yap, 1986; 1990).

Lakhanpal (1994) refers to these environmental factors as external factors, being factors outside the control of organizations and business owners. Yap (1986; 1990) categorises external factors into general and specific factors. General factors include social, economic, legal and cultural factors and specific external factors include customers, suppliers and competitors.

Firm Specific External Factors In the context of ICTs that support E-Commerce, it is suggested that pressure brought about by a new type of customer value proposition of what they want, when and how they want it and at the lowest cost has been identified as a key influence on ICT uptake (Kalakota and Robinson, 2001). Daniel et.al. (2000) and Dongen et al. (2002) found that responding to competitors was also likely to be an important driver towards the adoption of ICTs that support e-commerce. According to them, the overall reason for the adoption of ICTs supporting e-commerce by SMEs was to enhance customer relationships either through improving customer services, developing the brand, seeking out new customers or to allow for discourse with customers. The notion was that these businesses better understand how competitive differentiation can be achieved by developing superior customer relationships. Kalakota and Robinson (2001) have similar views claiming that through the use of ICTs that support e-commerce, companies can become the best, most recognizable and also the cheapest. That is, E-Commerce can create opportunities for a combination of differentiation and cost leadership strategies to be employed (Campbell-Hunt et.al. 2000).

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Fink (1998) provides a summary of the external factors reported to influence ICT adoption. These include vendor support (Yap et.al. 1992), competitor pressure (Cragg and King, 1993) and external pressure (Iacovou et. Al. 1995). The literature suggests that competitors could be one of the important external factors considered by SMEs in ICT adoption (Cragg and King, 1993). ICT could be used as a tool to gain competitive advantage to allow a firm to stay ahead of or to keep pace with the competitors (Earl 1989; Galliers and Sutherland 1999; Turban et. Al. 2002). This suggests that ICT adoption decision would be influenced by the relative advantages gained by SMEs compared to their competitors and if there are no relative advantages gained by SMEs, IT might not be adopted.

The pressure from suppliers is also acknowledged as a key influence by Poon (2000). Hollander et.al. (2000) support the view, noting that ICT can be used to support the business relations with suppliers and customers, for example by processing transaction more efficiently, improving response time, reducing cost of transaction, increasing the amount of transaction processed. Suppliers and customers are another factor being considered in IT adoption. However, from previous experience, it is unlikely that the adoption decision would be influenced by compatibility with the customers and suppliers systems. The decision is on what type of IT solution to adopt IT is more likely to improve services rather than focusing on how effectively it integrates with customers and suppliers systems.

General Environmental Factors Johnson and Scholes (1993), Fry and Stone (1995), Hunger and Wheelen (1996), and Coulthard, Howell and Clarke (1996) all identify four general external factors; political, economic, social and technological. It may be argued from the literature that adoption of ICT by SMEs is influenced by generic environmental factors which are not unique to a particular SME. It is suggested that their economic, technological, political environments can influence their uptake of ICTs. For instance, in some countries, government and its agencies often provide such assistance to help SMEs in improving their business (Drew 2003; Utomo and Dodgson, 2001; Dutta and Evrard, 1999).

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For example, the government might provide series of IT workshop and training for SMEs which may assist in the decision-making process. The government role can be either to encourage or discourage IT adoption depending on what kind of policy is implemented to assist SMEs. Some governments use the welfare model, where they hand out the assistance package directly to SMEs (Dutta and Evrard, 1999), while others choose to formulate policy and provide access to enabler infrastructure to allow SMEs development. The influence of political players is not the only external factor in ICT adoption by SMEs. They consist of independent and impartial consultants and IT product vendors (Chau 1995; Fink 1998; Utomo and Dodgson 2001). They could provide expertise regarding IT adoption for SMEs. However, SMEs need to consider the budget available for hiring consultants service since they usually involve considerable expense. A further dimension on which small firms vary, and which is recognized in the literature, relates to the interrelated influences of customers, suppliers, industry, competitors and products/services.

Specific Environmental Factors Perceived pressure from customers and suppliers, or the degree of their E-Business readiness, can provide a driver for adopting ICT that support e-Business but may not guarantee adoption (Al-Qirim 2005; Beck, Wigand and Knig 2005; Ching and Ellis 2004; Del Aguila-Obra and Padilla-Melndez 2006; Gemino, Mackay and Reich 2006; Khazanchi 2005; Pflughoeft et al. 2003; Stansfield and Grant 2003; Wymer and Regan 2005).

For example, Zheng et. Al. (2005) argue that some firms with a small customer base and low transaction volumes might find paper systems more viable than adopting ICTs that support E-Business. This would be especially true if the small firm does not rely upon the customer applying pressure for the majority of its trade. Also, some firms see face-to-face communication and associated trust with customers and suppliers as their primary competitive advantage over larger firms. Thus adoption of ICTs that support E-Business will not occur if it risks impersonalizing or even damaging relationships with trading partners (Beck, Wigand and Knig 2005; Castleman 2004; Piscitello and

Sgobbi 2004; Zheng et al. 2005). For other firms, this social aspect of running the business might be more important than attracting new customers (Castleman, 2004), or the type of industry might mean that

29

customers are typically not loyal and are instead more price-sensitive. This suggests that small firm relationships with customers and suppliers vary widely between small firms, and can result in different business goals and associated E-Business suitability.

The business goals of small firms are also likely to vary depending on the industry they trade within. For example, perceived pressure from competitors can drive E-Business adoption (Al-Qirim 2005; Beck, Wigand and Knig 2005; Ching and Ellis 2004; Dholakia and Kshetri 2004; Fillis, Johansson and Wagner 2003; Kaynak, Tatoglu and Kula 2005; Pflughoeft et al. 2003; Wymer and Regan 2005), but this pressure varies depending on the intensity of E-Business use within the industry and on whether E-Business is the norm or increasing (Kaynak, Tatoglu and Kula 2005; Khazanchi 2005).

For example, McAdam, McConvery and Armstrong (2004) found that the rural manufacturing sector in the UK continued with traditional methods of doing business, and therefore did not encourage the adoption of new, innovative practices. Fillis, Johansson and Wagner (2003) add that the extent of globalization within particular industries differ widely. Egan, Clancy and OToole (2003) found that primary businesses producing generic products for B-2-B markets had significantly lower usage of ICT that support E-Business compared to the other sectors. These variances among industries, again, will give rise to variances in small firm business goals and in the suitability of E-Business solutions. In addition, Coulthard, Castleman and Batten (2004) argue that many small firms trade across industries, which further complicates matters. Each industry the small firm trades within might have different expectations like business processes, government regulations, standards and hence non-adoption of E-Business might be the only cost effective option.

This suggests that understanding small firm business goals, and the suitability of E-Business, requires a thorough understanding of the industry norms and practices which exist within a particular geographical location in which the firm resides. In summary, there are many permutations of customer, supplier, industry and product/service related issues, together with the other areas of variance discussed which might influence the business goals of small firms.

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All these interrelated issues and associated business goals appear to influence whether ICT that support EBusiness are suitable or not. Unfortunately, these ideal types have been found seriously wanting in terms of their ability to explain the actual competitive or innovative performance of a company, or its speed of technological adoption.

The adoption of ICTs that support EDI has largely been associated with the development of tight supply chains that are focused around a leading company with significant market power. This leading company can ensure its business partners conform to its requirements. In manufacturing and retailing the implementation of ICTs that support EDI has commonly resulted in the development of hub-spoke EDI networks around the leading company (Zwass, 1996). These hub-spoke systems are limited in flexibility; it is very difficult to alter the connected partners, message formats and transaction procedures. Thus, the role of SMEs in hub-spoke systems is often marginal. In many cases they are simply embedded in a closed system of relationships, the conditions of entry and action being determined by their larger partners (Windrum and de Berringer, 2002).

Sillince et. Al. (1998) found that the most important issue affecting the decision by SMEs to adopt email was whether customers, suppliers and other organizations with which they regularly communicate also have e-mail. Thus, in the absence of monopolistic buyers or monopolistic sellers dominating supply chains, adoption decisions are affected by network externalities.

Here, the perceived value of a network technology increases according to the number of other users who are currently using the same technology. This has been formalised in Metcalfes Law, which states that the value of a network is proportional to the number of users (Windrum and Swann, 1999).

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2.6

Conceptual Framework

The theoretical framework and empirical literature can be distilled into a conceptual framework showing the interrelationships among the variables considered in this study.

Internal Factors
Manager Characteristics Innovation Attitude IT Knowledge Level of Education Business Characteristics Business Size Structure Turnover Profitability Ease of Credit Acquisition

SMEs ICT Adoption

External Factors
General External Environment

Economic Technology Political Social

Specific External Pressures Competitors Customers Suppliers

Independent Variables Source: Author

Fig. 2.1 Conceptual Framework

Dependent Variable

The study posits that successful adoption of ICT by SMEs depend on factors that they have control and no control over. The framework suggests that manager characteristics such as Innovation, Attitude, IT knowledge, Level of Education and the firms characteristics can influence the uptake of ICT by SMEs.

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While an SME can have control over these two sets of factors, the firm has no control over Economic, Technological, Political, and Competitive environment. Likewise influence of Customers and Suppliers are likely to determine adoption but are beyond an SMEs control.

In summary, the decision to adopt ICT is dependent on the character of the key decision making person, the firm and its external environment. This section explored literature pertinent to the study. It provided a framework that underpins the work and a review of empirical literature. Section Three presents the method used to obtain data required to answer the research hypotheses outlined in the current section .

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3 METHODOLOGY Research Design The study adopted a survey design to explore the perceived extent and factors influencing the adoption of ICT by SMEs. This design was considered appropriate since this was an exploratory study aimed at describing the relationship among the dependent and independent variables. The design was chosen because of the need to collect structured data on the perceived influence of internal factors including managers innovativeness, attitude, IT knowledge, level of education and culture, and business size, structure and ease of credit acquisition, and external factors like economic, ICT infrastructure, political social influences, and competitors on SMEs adoption of ICT.

Population The population of interest consisted of all private enterprises that employ less than 250 employees within Nairobi and its environs. These SMEs were from service and manufacturing sectors of the economy and included hotels, retail stores, building and construction firms, educational institutions, tours and travel agencies, research organizations, security companies, it firms, cooperative SACCOS, petrol stations, hospitals/clinics, bookshops, courier firms, transport companies and banking and insurance firms.

The inclusion of firms in all sectors was consistent with the need to ensure that the sample selected was representative of the population of the SMEs in Kenya. Due to time and resource constraints, the study population consisted of SMEs based in Nairobi. Further, since the use of ICT is expected to enhance the competitiveness of SMEs it was expected that SMEs operating in Nairobi, which produces over 60% of the countrys GDP, would have the imperative to adopt ICT.

Sampling The study adopted a stratified random sampling technique to select 180 SMEs for the study. The final sample consisted of firms in the banking and insurance, hotels, retail stores, building and construction,

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educational institutions, tours and travel, research organisations, NGOs security firms, IT and services, petroleum firms, health care, bookshops, courier and transport firms. The exploratory nature of the study made it useful to include firms from all sectors of the economy.

Research Instrument The study sought to measure the impact of Owner/CEO innovation, Owner/CEO Attitude, Owner/CEO IT knowledge, Organization Size and structure, the countrys economy and ICT infrastructure on Adoption of ICT by SMEs. It was based on a structured questionnaire that consisted of five parts. Part 1 captured the demographic variables, such as the nature of the business, type of business, job title, age and gender of the Owner/Manager. Part 2 addressed the managers ICT characteristics, such as ICT knowledge and utilisation. Part 3 addressed the organizational characteristics that may impact on adoption such as size of business and sales turnover. While part 2 and 3 focussed on possible internal factors, Part 4 focused on external factors, such as the economy, IT infrastructure, social political influences that may impact on the adoption of ICT. Part 5 focussed on the dependent variable which was measured as the current level of ICT utilisation within the SME sector.

The instrument was tested for reliability to ensure that the observed variable measures the true value and is error free. The Cronbach Alpha for the items in the instrument was 0.729. According to Nunally (1978) a value of 0.70 and above implies a reliable instrument.

Data Collection The process of data collection involved conducting a pilot study to ensure that the instrument did not have items that were difficult for the target respondents. The pilot phase involved five SMEs and revealed useful results that led to the modifications of the instrument. The modified instrument involved the drop and pick strategy for respondents who could not complete the instrument during the visit. Two research assistants were engaged to help in distributing the instrument to owners/managers of the 180 SMEs included in the sample.

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Measurement of Constructs The literature on SME adoption of ICT seems to suggest that the characteristics of the owner, the firm and its environment have an influence on the status of adoption (Thong and Yap, 1995; Johnson and Scholes, 1993; Wierenga and Ophuis, 1997). The measurement of constructs for independent and dependent variables considered in this study were based on previous SME innovation diffusion studies. Following diffusion studies (Rogers, 2003) adoption was measured using a yes/no construct and a likert item seeking to establish the frequency of use. The status of adoption was measured by asking if respondents had invested in ICT artefacts such as Computer, Cell Phone, Personal Digital Assistant (PDA), Fax and Internet Connection. Further, the extent of use was measured by asking whether they used these artefacts heavily.

The independent variables relating to the characteristics of the organisation and its ownership or management were measured using constructs derived from previous innovation studies. The extent to which decision making was centralised was measured, on a 5 point likert scale, as the extent to which decision making was centralised on the owner or manager (Wierenga and Ophuis, 1997; Thong and Yap, 1995; Thong, 1999; Raymond, 1990).

The extent of formalisation was measured by how well defined the SMEs management structure was and whether there were clearly defined job descriptions for everyone in the SME, on a 5 point likert scale. Ease of Credit Acquisition has been used as a surrogate for ability to acquire ICT artifacts (Thong and Yap 1992). In this study, it was measured on a 5 point likert scale as the level of difficulty in acquiring credit from banks and other lending institutions. Following Thong and Yap (1995) and Ang and Koh (1997) the influence of owner/CEO characteristics such as innovativeness, level of IT knowledge, attitude towards ICT and level of education were measured on a 5 point likert scale.

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4 FINDINGS AND INTERPRETATIONS Introduction This section presents findings from the descriptive and inferential analysis of the survey of factors influencing the adoption of ICT among SMEs in Kenya. The objective of the study was to determine the influence of owner or manager characteristics, firm characteristics, and its external environments on the extent of ICT adoption by SMEs. Findings relating to the demographics of the respondents are presented in section 4.2 while the influence of owner/manager characteristics, firm characteristics and external environment are presented in sections 4.3, 4.4, and 4.5 respectively. The findings are presented and interpreted in light of the theoretical and empirical literature on ICT adoption.

Demographic Variables The literature suggests that respondent characteristics such as age, gender, educational level, and firm characteristics like sector, structure and size may influence the uptake of ICT by SMEs (Burke 2005; Ching and Ellis 2004; Fillis, and Johansson and Wagner 2003). Respondent owner/managers were asked to state the nature and type of their business, level occupied in management hierarchy, gender, age, and highest educational level attained. The findings are cross tabulated in sections 4.2.1 through to 4.2.4.

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Sectoral Spread and Ownership of SMEs The literature on ICT adoption suggests that the business sector of SME may influence its adoption of ICT (Martin and Matlay, 2001). To establish the Sectoral spread and ownership of SMEs surveyed the survey instrument included an item on the nature and type of business. Table 4.1 presents the spread of ownership and business sector for the firms surveyed. Professional Services Hospitality/ Leisure Financial Services Percentage 42 25 69 136 100% 31% 18% 51% 100%

Retail/Wholesale

Construction

Transport

Sole Partnership Company Total Percentage

4 3 5 12 9%

10 2 22 34 25%

9 6 9 24 18%

0 1 12 13 10%

18 11 5 34 25%

1 2 16 19 14%

N=136 in this and subsequent tables Table 4.1: Sectoral Spread and Ownership of SMEs The data in Table 4.1 shows that 90% of the SMEs surveyed were in the service sector. Within this sector, less than 10% of the SMEs were in financial services, which consisted of banks, savings and credit cooperatives, and insurance firms. SMEs in professional services, consisted of IT services, research

organisations, health services, educational services, non-governmental service providers and security services, and accounted for 25% of the SMEs surveyed. The retail and wholesale sector consisted of retail firms dealing in petrol products, books, and fast moving consumer goods, and comprised 25% of the SMEs surveyed. Thus only 10% of the SMEs are in the non service sector, consisting mainly of firms engaged in the building and construction industry as very few SMEs are engaged in manufacturing. This may be a reflection of the small size of the manufacturing sector in Kenya.

Total

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In addition to establishing the Sectoral distribution of the SMEs surveyed, their ownership structure was also explored. Data in Table 4.1 suggests that half of the SMEs surveyed operated as companies while almost one fifth were organised as partnerships, and one third as sole traders. Evidently, the SMEs surveyed were predominantly spread in the service sector and organised as companies.

Age and Position of Respondents The respondents age and level in management of the SME was investigated owing to the potential to be innovative at a given age and the possibility of support for ICT adoption being based on respondents level in management. Table 2.3 presents the findings Operational Level Management

Middle level Management

Top Level Management

< 30 years 30 39 40 49

3 0 0

59 44 11 3 117 86%

5 6 4 1 16 12%

67 50 15 4 136 100%

49% 37% 11% 3% 100%

>50 0 Total 3 Percentage 2% Table 4.2: Age and Position of Respondents

Data in Table 4.2 shows that 50% of the respondents are below 30 years of age while only 3% are above 50 year of age. While only 2% of those who responded were operational managers, 85% of respondents were middle level managers, who can be said were at a level that allowed them to respond to the constructs in the study meaningfully. Thus the majority of respondents were capable of handling the questions posed, having been assigned decision making roles, owing to the flat structure in most SMEs.

The data shows that the SMEs surveyed were predominantly managed by young non owners. Perhaps the youthful nature of their management could made SMEs enthusiastic about ICT innovations. According to Rogers (1995) if these young managers view ICT as having relative advantage, easy to use and trialable then they would be innovative in applying them to succeed in their careers.

Percentage

Total

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Age and Gender profile of Respondents The gender of respondents was profiled and results cross tabulated against their age. Table 4.3 presents the age and gender profile of respondents. Male < 30 years 30 - 39 40 - 49 >50 Total Percentage Table 4.3: Age and Gender profile 42 35 10 2 89 65% Female 25 15 5 2 47 35% Total 67 50 15 4 136 100% Percentage 49% 37% 11% 3% 100%

Data in Table 4.3 shows that almost two thirds of respondent were males and that half of the respondents were below 30 years of age. Thus the data seems to be suggesting that the majority of respondents who manage SMEs are young males. Perhaps, given the need to excel in their careers, they may be motivated enough to adopt innovations like ICT that can make their firms competitive.

Age and Level of Education of Respondents The literature on diffusion of innovations suggests that knowledge of the innovation may influence its uptake (Rogers, 1995). To establish whether the majority of respondents were educated they were asked to indicate their highest education level attained. The respondents level of education is cross tabulated against their age in Table 4.4. Secondary/Vo cational < 30 years 30 - 39 40 - 49 > 50 Total Percentage 27 17 4 2 50 37% 39 29% Bachelor's degree 15 21 3 Masters degree 0 3 3 1 7 5% Professional Qualification 25 9 5 1 40 29% Total 67 50 15 4 136 100% Percenta ge 49% 37% 11% 3% 100%

Table 4.4: Age and Education of Respondents.

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The findings in Table 4.3 show that while only 5% of the respondents report having post graduate education close to 60% have either a bachelors degree or professional qualifications. Further, the cross tabulation suggests that the majority of these well trained respondents are young, as nearly 90% are below 40 years. This may point to a management of SMEs that are educated, contrary to commonly held belief that they are managed by people who are illiterate. Perhaps these respondents are knowledgeable in ICT as university and professional programmes cover ICT literacy and proficiency. Thus, it may be assumed that SMEs managers know the potential of ICT and may consider them as being advantageous to deploy.

Section 4.2 presented demographics and introduced their relevance to the problem being investigated. The current study sought to determine the extent of ICT adoption and the relative influence of internal and external factors considered in the study.

While section 4.3 explores the extent of ICT adoption, section 4.4 presents regression analysis of the significance of manager characteristics, firm characteristics and external environmental influences on the adoption of ICT by SMEs and the mean ratings and standard deviations of these explanatory variables.

Extent of ICT adoption by SMEs Adoption is regarded as a dichotomous construct measured using a yes/no item while the extent of adoption was measured by considering the perceived extent of use of the ICTs considered, on a 5 point likert scale where 1 means strongly disagree and 5 means strongly agree. Figure 4.1: presents the mean extent of ICT adoption by SMEs.

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Extent of ICT Adoption

We use fax machines heavily We use internet and email services heavily

Std. Deviation Mean

We exclusively use land Lines

We exclusively use mobile phones 0.00 1.00 2.00 3.00 4.00 We use fax machines heavily 1.49 2.41 5.00

We exclusively We use We exclusively use mobile internet and use land Lines phones email services Std. Deviation Mean 0.75 4.72 1.42 3.52 1.73 3.33

M ean Extent

Figure 4.1: Mean Extent of ICT Adoption

The descriptive result in Fig. 4.1 indicates that respondents strongly agree that they exclusively use mobile phones. On the other hand they disagree that fax is used heavily and are indifferent on their use of internet and e-mail services in the business. This suggests that SMEs have adopted ICTs that have the potential to support mobile commerce and business. Evidently, they appear to have abandoned the use of fax and favour e-mail as a means of communication. The overall mean extent rate of 3.5, on a 5 point likert scale, points at agreement that landlines are used heavily by SMEs. Regression Analysis The objective of the analysis was to determine the link between owner/manager innovativeness and ICT adoption by SMEs. This was achieved by using stepwise regression method to provide a trial and error

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procedure for the best regression estimation of the influence of the predictor variables on the dependent variable.

Stepwise regression method was considered appropriate owing to the exploratory nature of the study and the need for a trial and error procedure to find the most influential variables. Stepwise method is applied for exploratory research where there are no theory based hypotheses to test (Menard, 1995). This technique selects variables for a regression equation one at a time. Selecting first the most valid predictor variable, it then selects that variable which when combined with the first is the most useful or adds the most to the multiple correlation and which thus yields the best two predictor equation among those equations which contain the first variable selected.

Descriptive Results The stepwise method presumes knowledge of the means of the predictor variables. The means and standard deviations of these variables provide a preliminary picture of the relative importance of the various predictor variables on the adoption of ICT by SMEs. This section presents the results of stepwise multiple regressions, beginning with the descriptive statistics and then the inferential statistics that refine the preliminary descriptive picture of the influence of the various factors on the adoption of ICT. Table 4.5 presents the means and standard deviations. Mean Competitive Pressure (COMP) Manager Attitude (ATTI) Manager Innovation (INNOV) State of Infrastructure (STINFR) State of Economy (STECON) Manager IT Knowledge (KNOW) Formalization (FORM) Centralization (CENTR) Ease of Credit Acquisition (CREDIT) Political Influence (POLI) Size (SIZE) 4.57 4.56 4.18 4.13 3.97 3.88 3.59 3.49 2.7 2.64 2.59 Std. Deviation 0.82 0.9 0.86 1.12 1.35 1.06 1.35 1.35 1.18 1.3 1.45

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Manager Educational Level (EDUC) Social Influence (SOC) Table 4.5: Descriptive Statistics

2.27 1.97

1.24 1.05

The descriptives, in Table 4.5, showing the mean ratings for the influence of the predictor variables, are based on a 5 point likert scale, where 1 means strongly disagree or very unimportant and 5 means strongly agree or very important. The data in Table 4.5 provides an initial picture of the influence of predictor variables and suggest that respondents strongly agree that competitive pressure and manager attitudes are key influences of adoption of ICT by SMEs.

The factors perceived as being important in the adoption of ICT are manager innovativeness, state of infrastructure, state of economy, manager IT knowledge, and the extent of formalisation. The results suggest respondents were not sure of the influence of firm size, ease of credit acquisition and political environment on ICT adoption by SMEs. Finally Table 4.5 suggest that respondents perceive the social environment of firms and managers educational level as having no influence on the adoption of ICT.

While the results point at competitive pressure and social environment as the most significant and insignificant factors, respectively, previous theoretical and empirical literature seem to suggest that manager and firm characteristics are most significant influence on ICT adoption in SMEs (Rogers, 1995; Al-Qirim, 2005; Ching and Ellis 2004; Chong 2006; Premkumar 2003 and Wymer and Regan, 2005).

Multiple Regression Results The variance in findings with previous work pointed at the need to do further work using inferential statistics. Stepwise regression method provided the needed trial and error procedure to find the most influential variables. The variables were all run together at the first stage and in subsequent steps those which contribute insignificantly to the model were excluded.

We present a summary of the attributes of the model, showing the R, R 2 and adjusted R2, the F and Durbin Watson statistics and their interpretations in section 4.4.2.1. The test of the models significance, using

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analysis of variance, is presented in section 4.4.2.2. Finally, the standardised beta regression coefficients for the most significant predictor variables are presented in section 4.4.2.3.

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Summary of the Stepwise Regression Models The resulting four stepwise regression models are shown in Table 4.6. R Model 1 2 3 4 a b c d .545 .624 .683 .718 .297 .390 .467 .516 .292 .381 .455 .501 .94 .88 .82 .79 R Adjusted R Square Square Std. Error of the Estimate Change Statistics R Square Change .297 .092 .077 .049 F Sig. F df1 df2 Change Change 56.724 1 134 .000 a 20.140 1 133 .000 b 19.056 1 132 .000 c 13.244 1 131 .000 d DurbinWatson

1.586

Predictors: (Constant), Manager Innovation (INNOV) Predictors: (Constant), Manager Innovation (INNOV), Size (SIZE) Predictors: (Constant), Manager Innovation (INNOV), Size (SIZE), Ease of Credit Acq (CREDIT) Predictors: (Constant), Manager Innovation (INNOV), Size (SIZE), Ease of Credit Acq (CREDIT), Social Influence (SOC) e Dependent Variable: USEIT_DV Table 4.6 Model Summary

The data summarising the stepwise regression models in Table 4.6 shows the values of R, R 2, and adjusted R2. Whereas R measures the correlation between the observed and predicted value of the dependent variable, ICT adoption, it does not indicate the proportion of the variance in the dependent variable which is accounted for in the multiple regression model. R2 is the square of R computed to obtain the proportion of the variance in the dependent variable which is accounted for by the model. R 2 is a measure of how good a prediction of the dependent variable can be made by knowing the predictor variables. Since R 2 tends to overestimate the success of the model when applied to the real world, an adjusted R 2 value is calculated which takes into account the number of variables in the model and the number of observations the model is based on. These adjusted R2 values give the most useful measures of the success of a model.

In Table 4.6 we have an adjusted R2 value of 0.501, for model 4, which indicated that the model accounts for 50% of the variance in the dependent variable. The R 2 essentially measures the goodness of fit of the regression model. The value of 0.501 indicates that the final model can account for 50% of the variance in ICT adoption by SMEs. This indicates an acceptable fit in the model, and an improvement on model 1 which had a value of 0.292.

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The Durbin Watson statistic was used to determine the presence of autocorrelation in the residuals from the stepwise multiple regression analysis. According to the literature, the value of the statistic always lies between 0 and 4, and a value that is substantially less than 2 evidences positive serial correlation.

As a rough rule of the thumb if it is less than 1.5 there may be cause for alarm. Small values indicate that successive error terms are on average close in value to one another or positively correlated. If it is greater than 2 then it means that successive error terms are on average much different in value to one another or negatively correlated. In regression this can imply an underestimation of the level of statistical significance. In table 4.6 the Durbin Watson statistic is 1.586, indicating that there was no autocorrelation in our model.

ANOVA Test of Significance of the Model The model derived from the multiple stepwise method of regression was tested for variation using analysis of variance (ANOVA). ANOVA tests the significance of the variation in the dependent variable that can be attributed to the regression of the four independent variables. Table 4.7 presents the ANOVA of the four models from the stepwise regression analysis. Sum of Squares df Mean Square F Sig. Regression 49.792 1 49.792 56.724 .000a Residual 117.625 134 .878 Total 167.417 135 2 Regression 65.261 2 32.631 42.483 .000b Residual 102.156 133 .768 Total 167.417 135 3 Regression 78.148 3 26.049 38.519 .000c Residual 89.269 132 .676 Total 167.417 135 4 Regression 86.345 4 21.586 34.880 .000d Residual 81.073 131 .619 Total 167.417 135 a Predictors: (Constant), Manager Innovation (INNOV) b Predictors: (Constant), Manager Innovation (INNOV), Size (SIZE) c Predictors: (Constant), Manager Innovation (INNOV), Size (SIZE), Ease of Credit Acq (CREDIT) d Predictors: (Constant), Manager Innovation (INNOV), Size (SIZE), Ease of Credit Acq (CREDIT), Social Influence (SOC) e Dependent Variable: USEIT_DV Model 1

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Table 4.7: Analysis of Variance Using the analysis of variance procedure the regression model is tested by determining the calculated F statistic. The computed F statistic is then compared with the critical test value read from the F statistic table, for a given df and the level of significance p < 0.05. The level of significance, in the ANOVA table, i p < 0.05, suggests a low probability of the explanatory variables having chance influence on the dependent variable. The relationship is deemed significant if the calculated F statistic is greater than the critical test value. Table 4.7 shows a computed F statistic of 34.880, and compared with the critical test value, at p < 0.05 and df = 4, of 6.39, shows that the regression is statistically significant, the computed value being greater than the critical test value. The results in Tables 4.6 and 4.7 all point to the suitability of the regression model resulting from the stepwise procedure.

Stepwise Multiple Regression Coefficients The objective of the study was to determine the influence of predictor variables on the adoption of ICT by SMEs. This section presents the results of stepwise regression aimed at identifying the most significant influences on the decision to adopt ICT using regression coefficients. Table 4.8 presents the regression coefficients, standard error, and collinearity statistics for the variables found to be significant from the trial and error approach.

Model 1(Constant) INNOV 2(Constant) INNOV SIZE 3(Constant) INNOV SIZE CREDIT 4(Constant) INNOV

Unstandardized Coefficients B .344 .709 -.355 .731 .234 -.810 .666 .237 .267 -1.467 .725

Std. Error .401 .094 .406 .088 .052 .395 .084 .049 .061 .419 .082

Standardized Coefficients Beta

Sig. Collinearity Statistics Tolerance

VIF

.545 .563 .304 .512 .308 .282 .558

.858 .393 7.532 .000 -.875 .383 8.292 .000 4.488 .000 -2.049 .042 7.920 .000 4.832 .000 4.365 .000 -3.500 .001 8.837 .000

1.000 .997 .997 .965 .997 .968 .927

1.000 1.003 1.003 1.036 1.003 1.033 1.079

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SIZE .236 CREDIT .244 SOC .239 a Dependent Variable: USEIT_DV

.047 .059 .066

.307 .258 .226

5.043 .000 4.149 .000 3.639 .000

.997 .957 .956

1.003 1.045 1.047

Table 4.8: Stepwise Multiple Regression Coefficients Tolerance and VIF are tests for establishing if there are overly high correlations among the independent variables or multicollinearity. Table 4.8 shows VIF values that are all closer to 1.00, which means there is no multicollinearity problem by the common rule of thumb that only VIF>4.0 indicates a multicollinearity problem. The other statistic in Table 4.8 is the significance level. In the final model all the other variables have a significance level less than 0.1, an indication of the significance of the impact of the independent variables on the dependent variable.

Table 4.8 presents both Unstandardized Coefficients and standardized Coefficients. However, since the variables were scaled differently, the regression coefficients of interest in this table are the standardised coefficients. This is because their relative significance can be compared only on the basis of the standardized beta coefficients.

The regression coefficients can be interpreted to represent the amount of change that occurs in the predicted value of the dependent variable as a result of a change in an independent variable, assuming the other independent variables remain constant. An alternative interpretation is that they determine the importance of each of the variables in a regression equation. The importance of variables as predictors can be viewed in absolute terms, when we compare the coefficients across equations or in relative terms, when comparing beta values within an equation. When evaluating many variables as potential single predictors the variable with the highest correlation coefficient with the dependent variable is considered to be the best predictor. The independent variable with the largest standardised variable, independent of the sign, has the strongest effect.

The final model in Table 4.8 shows the relative importance of the predictor variables considered in the study. The manager characteristic factor, innovativeness which has a positive value of 0.558, has the most

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significant influence on adoption of ICT by SMEs. It may be interpreted to mean that SMEs intensity of use of ICTs increases in direct proportion to the innovativeness of the owner manager.

The results further reveal that size of the SME, which has a positive beta value of 0.307, is the second best explanatory variable. This may be interpreted to mean that the adoption of ICT increases in direct proportion to size. The other variable revealed to be significant in the stepwise regression is availability of credit, which has a beta value of 0.258, showing that a direct relationship exists between the use of ICT and the ease with which SMEs can obtain credit. Finally, the model results indicate that the social environment of an SME is positively related to its adoption of ICT.

Summary This section presented findings on the extent of adoption of ICT and the relative importance of the factors explaining the extent of adoption of ICT by SMEs. The findings suggest that mobile phones are the most widely used ICT artefacts and the use of fax has been overtaken by email, as a means of communication among SMEs surveyed. The use of internet appears not to be as extensive as the use of landlines, which is the second most utilised ICT artefact. The kind of artifacts adopted by SMEs may be interpreted to be mean that they are keeping up with the trend towards more use of mobile telephony and the mobile commerce and business applications it supports. Perhaps that use of fixed lines of communication will be less and less important for SMEs that have embraced e-mail in favour of fax that is dependent on landlines. Thus, while SMEs may not have deployed e-business and e-commerce applications that rely on conventional internet infrastructure, it may be possible for them to adopt mobile commerce and business applications, given their current extent of use of mobile telephony.

Findings relating to the significance of predictor variables point at an innovative owner/manager, size of the SME, availability of credit and the social environment as the key factors in the adoption of ICT by SMEs. This seems to suggest the importance of both internal and external influences on the adoption of ICTs by SMEs.

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The current section presented the findings of the study and interpreted them in light of the objectives of the study. Section 5 provides a discussion of these findings in the context of the theoretical and empirical literature on the adoption of ICT by SMEs.

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5 EXPLORING THE LINK BETWEEN MANAGER INNOVATIVENESS AND ICT ADOPTION Introduction The current section ties together the various parts of the thesis by discussing what the results and analysis mean relative to the objectives of the study. Included in the discussions are the meaning of observations and findings in light of previous findings made by other researchers, a comparison and contrast of the methods used in the analysis section that links the results, specific to one area, to other findings globally.

The section seeks to establish how the findings compare to previous work at on ICT adoption among SMEs in other social economic contexts. In particular the discussions will focus on whether the findings are new and different or odd in a way that needs explaining or are they within the range of expected values based on other work. Finally, the discussions will shed light on whether the results help explain other situations and have any global/international implications.

Discussion of Results This section provides a detailed discussion of the results reported in Section 4 and explains why they are at variance or similar to previous findings. It begins by stating the objectives of the study and the findings for each objective, detailing how they relate to previous findings on factors influencing SMEs adoption of ICT. Based on the review of theoretical and empirical literature, the resulting conceptual framework suggested that successful adoption of ICT by SMEs depend on factors that may be beyond or within their control. To guide the discussion it is useful to restate the objectives of the study, which were to determine the extent of ICT adoption by SMEs in Kenya, and establish the extent to which owner or manager characteristics, firm characteristics and its external environments were significant in their adoption decisions. The results relating to the first objective which related to the dependent variable were analysed using descriptive statistics.

Results on Dependent Variable

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The results of descriptive analysis, based on the mean agreement of the extent of use of ICT artifacts, such as mobile phones, internet and e-mail and facsimile, are similar to previous findings that mobile phones are used exclusively. The respondents were in strong agreement, given the standard deviation of less than 1 that this artifact was used to an exclusive extent.

However, while the results suggest that mobile phone usage has overtaken land line usage, it appears that most respondents still rely more on landlines than e-mail and internet for communication purposes. This reflects the recent nature of mobile phones and the possibility that it is a technology that may not finally replace landlines as the prime means verbal communication in business. It appears that the investment in fixed telephony, as evidenced by huge investments in analog and digital switchboards, within firms surveyed, may make it take longer for mobile phones to replace fixed land lines for use in business.

The least used artifact, the fax appears to represent a past technology that has been effectively replaced by the ability of e-mail to handle attachments. These findings are not surprising since previous work, in the context of emerging South East Asian economies and Europe, all show the rise in adoption of mobile technologies. Perhaps the results from the current study point at the potential to mainstream the use of mobile commerce and business applications in the SME sector.

The other artifacts considered in the survey were internet and landlines. The results indicate that respondents were indifferent on their use of internet and e-mail, suggesting that these technologies have not been wide adopted by SMEs. While the literature seems to suggest that most SMEs have replaced the fax with e-mail (Sillince et. al. 1998), the results in this study do not provide explicit support for this extent of use of the internet and e-mail.

The finding is not surprising given the level of infrastructural support that is accorded to SMEs in developing countries, such as Kenya. In South East Asian countries, where the bulk of reported intense usage of e-mail and internet occurs, there is concerted effort by governments to help SMEs leverage the advantages of e-mail over fax as a prime means of business communication. Further, with the low

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penetration of the internet, owing to high connectivity costs, coupled with lack of relevant knowledge, within SMEs, it is only reasonable to expect SMEs not to be using email and internet extensively in their business communications.

Results on Independent Variables The second objective of this study was to establish the extent to which owner or manager characteristics, firm characteristics, and its external environments were significant in their adoption decisions. For purposes of analysis these variables were categorised as either internal or external depending on the ability of an SME to control their potential influence on ICT adoption decisions.

Internal factors considered in the study included manager characteristics such as innovativeness, attitude, IT knowledge, level of education and the firms characteristics, such as structure, turnover, profitability, and ease of credit acquisition. External factors considered included the economic, technological, political and social influences that impact on all SMEs, and firm specific external influences such as competitors, customers and suppliers.

The extent to which internal and external factors influenced the adoption of ICT by SMEs was obtained using descriptive and inferential statistics. Descriptive statistics provided the raw materials for inferential analysis using stepwise multiple regression analysis. Both approaches point to the significant influence of manager innovativeness on the adoption of ICT. The mean rating suggests that respondents agree that innovativeness is a major consideration in the decision to adopt ICT in SMEs. Further, the preliminary descriptives suggest that, apart from innovativeness, state of infrastructure, competitive pressure and manager attitudes are viewed as major influences on ICT adoption. However, stepwise multiple regression analysis revealed that manager innovativeness was the most important explanatory variable. Other significant variables, according to this technique include size of the firm, ease of credit acquisition and the social consequences of ICT adoption. These findings are not surprising and are similar to what the empirical literature suggests. For instance, Al-Qirim (2005), Fillis,

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Johansson and Wagner (2003), Wymer and Regan 2005 all suggest that innovativeness, creativity and attitude toward risk influences ICT adoption decision.

The apparent influence of innovativeness, on the adoption decisions of SMEs surveyed is a reflection of the influence that owner manger has on decisions affecting the firm. Previous studies seem that seem to allude to the possible overriding influence of owner manager include Burke (2005), Ching and Ellis, (2004), Fillis, Johansson and Wagner (2003). For instance Fillis, Johansson and Wagner (2003) suggest that being the principal decision maker, the characteristics of owner/manager such as the determination to gain new skills and knowledge is a key influence on adoption of ICT.

Among the SMEs surveyed, it was evident that innovativeness was a key factor perceived to influence the adoption of ICT. This was apparent from the respondents lack of knowledge about advanced ICT artifacts that relate to networking and related applications such as e-commerce and e-business. Clearly, this position contrasts with the extent to which SMEs reported in South East Asian economies deploy ICT applications that support commerce and business (Lakhanpal, 1994; Yap, 1986; 1990). Most empirical work, on the adoption of ICTs that support commerce and business by SMEs, suggest that innovativeness is an important factor in the adoption of ICT. The results of stepwise regression further suggest that size of the SME is the second best ICT adoption predictor variable, while availability of credit and the social environment of an SME are third and fourth best predictors variables respectively. This finding is consistent with previous studies that point at the importance of SMEs size in the adoption of ICT. For instance Zmud (1984), Nilakanta and Scamell (1990) suggest that smaller companies are less likely to adopt ICT than large firms which require a higher level of information and technology.

In the context of ICTs that support E-Commerce, the most cited reasons for ICT adoption tend to be those based upon the companys size (Van Beveren and Thomson, 2002). Perhaps as is suggested, as a company grows in size, it becomes more difficult to communicate with customers and this leads to the adoption of ECommerce (Daniel et.al. 2002).

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While the results on the influence of E-Commerce seem to be widely supported by research in other contexts, there seem to be little support for the significance of credit availability and social factors in the literature on ICT adoption by SMEs. Whereas previous studies do not focus on the significance of credit availability, they allude to this factor when discussing the cost of ICT as a predictor variable. For instance, Dutta and Evrard (1999) allude to government assistance, in ICT artefact acquisition, noting that some governments use the welfare model, where they hand out the assistance package directly to SMEs, while others choose to formulate policy and provide access to enabler infrastructure to allow SMEs development.

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In the current work, it is evident that access to credit, for acquisition of ICT artifacts is regarded as more significant than variables like state of infrastructure, extent of formalization, extent of centralization and political influences. This is expected given the scarcity of financial institutions that can easily finance the acquisition of ICT artifacts by SMEs that are often not rated as credit worthy by mainstream banks.

The results further suggest that the possible negative social impacts of ICT may be a more significant of the external variables over which the SME has no control. It is viewed as a better predictor of ICT adoption than generic external environmental influences such as state of the economy, political and technological factors. This is not surprising since the influence of political issues on ICT adoption by SMEs is as minimal as is the influence of the state of economy and technological factors, in the Kenyan context.

In Kenya, incentives to acquire ICT by firms have taken the form of tax exemption, for all importing firms, and the rolling out of a national optic fiber backbone across the nation that is connected to the undersea cable which links the country more cheaply than satellite technologies. These efforts have not been specifically directed at the SME sector and therefore their sectoral influence may not have been apparent to respondents. Nonetheless, availability of good infrastructure is no longer regarded as a key impediment given the rollout of mobile and fiber optic networks by several providers, following the liberalization of the Kenyan telecommunications sector, in recent years.

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Thus it appears that the economic incentives, like duty free importation of ICT artifacts and cheaper bandwidth have resulted in more adopters of ICT across the spectrum of firms. The resulting increased adoption of ICT across the various sectors, by both small and large firms, appears to have raised awareness of the possible societal issues resulting from ICT usage.

This perhaps explains the apparent significance of social concerns in the adoption decision of SMEs among firms surveyed. Thus of the general environmental influences, it appears that efforts by stakeholders, and the government in particular may have resulted in the wide availability of affordable ICT artifacts, making the concerns of SMES move towards the financing of acquisition and taking care of the possible negative social impacts of ICT adoption.

While social concerns about the impact of ICT adoption is of significance in the adoption decisions of SMEs, in the category of external generic factors, specific environmental factors do not seem to have an explanatory role in ICT adoption by SMEs. It appears that SMEs are neither under supplier nor competitor or customer pressure to adopt ICT. This finding is at variance with previous studies which suggest that perceived pressure from customers and suppliers, or the degree of their E-Business readiness, can provide a driver for adopting ICT that support e-Business on ICT adoption by SMEs (Al-Qirim, 2005; Beck, Wigand and Knig, 2005; Ching and Ellis, 2004; Del Aguila-Obra and Padilla-Melndez, 2006; Wymer and Regan, 2005. Perhaps this may be as a result of the interorganisational nature of ICT applications that these studies focused on. Thus it may be argued that the results of the current survey may not be surprising given the level of ICT applications that were reported to be adopted by SMEs surveyed. Unlike SMEs in South East Asian economies, which have deployed ICTs that support E-Business, E-Commerce and related mobile applications, most SMEs surveyed hardly used ICT for commerce or business. The exception seems to be the mobile phone money transfer and payment services of mobile operators. This incidentally may not have specific relevance to SME use of ICT, and is still restricted to purchase of digital products, such as airtime, and payment of utilities like power bills, and services like insurance premiums.

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While section 5.2.1 and 5.2.2 focused on findings about the extent of ICT adoption and its predictor internal and external factors, section 5.3 discusses their analytical, methodological, theoretical and managerial implications.

Implications of Results The results of the study have several implications to academia and practitioners. This section discusses the analytical, methodological, theoretical and managerial implications of the findings detailed in section 4.

Analytical and Methodological Implications The current work follows the analytical approach to understanding the influence of various explanatory variables used by Lakhanpal (1994) and Yap (1986, 1990). The categorization of explanatory variable into internal and external factors makes it easy to identify the responsibility for action to improve the adoption of ICTs, given the results on which factors are significant. Evidently, of the firm controllable factors, manager innovativeness has been singled out as a key driver of ICT adoption. This suggests that the uptake of ICT is driven by manager innovativeness and any efforts to mainstream the adoption of ICT in SMEs may be successful if due regard is given to this factor Similarly, the revelation that firm size is a significant driver of ICT adoption also points at the most significant business characteristic that policy makers can take into consideration when designing SME intervention policies.

Likewise, the categorisation of factors into external ones also helps in the identification of which environmental concerns are regarded as significant enhancers or inhibitors of ICT adoption by SMEs. Results seem to point at the importance of possible negative societal implications of ICT adoption, given that economic, political and technological concerns have become less important with appropriate governmental interventions. The non significance of SME specific external variables like customer,

supplier and competitor influence is also easy to capture from the analytical stance adopted in categorising the factors.

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While the categorisation of the factors, as is diagrammed in the conceptual framework, enables us to focus more on their explanatory potential, the analysis of findings at a descriptive and inferential level is appropriate for an area not well investigated. The descriptive analysis provided the clue about perceived importance of the predictor variables.

However, given the exploratory nature of the study, the use of stepwise multiple regression method provides a trial and error procedure for the best regression estimation of the influence of the predictor variables on the dependent variable. Stepwise method has been applied for exploratory research where there are no theory based hypotheses to test (Menard, 1995). The method selects variables for a regression equation one at a time. It does so by selecting first the most valid predictor variable, before then selecting that variable which when combined with the first is the most useful or adds the most to the multiple correlation and which thus yields the best two predictor equation among those equations which contain the first variable selected.

This technique made it possible to capture the predictive influence of innovativeness, firm size, ease of credit acquisition and possible negative social consequences on ICT adoption by SMEs. Perhaps the adoption of this method provides a more relevant tool for an exploratory study in the context of a developing country, where causal analysis may be premature given the stage of adoption of ICT in SMEs. Thus, it may be suggested that this techniques be used in exploratory studies where the researcher does not have enough insight into the problem to enable him craft hypotheses to be tested.

Theoretical implications The findings of the current study shed more light on the process of innovation diffusion within SMEs and provide support for Rogers (1995) theoretical framework. In particular, the finding on the extent of adoption and the influence of manager innovativeness, firm size, ease of credit acquisition and the societal concerns all point at the relevance of Rogers DOI framework. Rogers (1995) theory proposes that innovation attributes collectively seek to explain the adoption process and the rate at which adoption occurs across members of a social system. According to Rogers (2003) an

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innovation, such as ICT, will be adopted if it is trialable, observable, less complex, compatible and of relative advantage. In the context of the current study, the characteristics of ICT innovations played an important role in their adoption.

For instance, SMEs were reported to have adopted e-mail because of its relative advantage over fax. Further, mobile phones were easily adopted owing to their relative advantage, trialability, simplicity of use and compatibility with existing values of respondents.

The second major idea in Rogerss framework is that an innovation decision making process has five distinct stages of knowledge, persuasion, decision, implementation and confirmation. This communication cycle, which precedes the adoption decision, was evident in the case of SMEs. The results confirm that how knowledgeable owners were about ICT innovations was a key determinant of whether an ICT artifact was adopted. Managerial innovativeness is essentially the first stage in the process of adoption decision making in Rogers framework. It may be concluded, from the DOI perspective that SMEs may not be adopting ICTs that support interorganisational applications, such as E-Business and E-Commerce owing to lack of knowledge about the innovations, by owner managers. Perhaps they are only knowledgeable about how to use ICT innovatively for verbal and written business communication, over the internet or mobile phones, and are not aware of the innovative use of ICTs that support electronic data interchange, videoconferencing, online auctioning, E-Commerce and E-Business owing to lack of innovativeness on the key decision maker, in the SME.

In respect of the implications of the results on the theoretical explanations of diffusion of innovations, the work appears to support the explanation provided by the widely used framework of innovation research. Perhaps it may be useful to

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investigate the influence of the factors reported as being significant in this current work using other frameworks that have evolved in the context of ICT adoption, such as the Technology Adoption Model (TAM) by Davis. In addition to theoretical implications, the results of the current study have implications for practitioners and policy makers.

Managerial Implications The extent of adoption reported in the study suggests basic use of ICTs that may not provide SMEs with the global visibility needed to be part of virtual manufacturing networks that are emerging. Perhaps the findings point at the opportunity to improve the uptake of ICTs, and in particular, those that support ECommerce, E-Business, M-Commerce and M-Business applications. This may provide SMEs with the much needed capacity to effectively compete in the increasingly global competitive arena.

This may suggest the need for enabling policy frameworks and intervention strategies by governmental and non governmental agencies, it SMEs were to play their rightful economic role. The findings further point at the key drivers that must be the subject of such interventions. The results of stepwise regression suggest that interventions by management of the sector may yield better rates of adoption if the managers/owners of SMEs are made more aware of the innovative use of ICTs. Further, size constraints and the resulting inability to finance ICT acquisition and concerns about undesired social consequences are issues that if addressed by policy organs may improve the ability of SMEs to harness the potential of ICT in playing their economic role.

Summary The current section discussed the findings on the extent of ICT adoption and the relative influence of factors that are internal and external to SMEs. It is evident that the use of ICT, among SMEs surveyed was for basic verbal and written communication, with mobile phones and e-mail being the key artifacts in use. This contrasts with the position in previous studies which showed use of ICTs that support the emergence of digital firms.

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While Rogers DOI framework offers an explanation to the level of adoption and the significance of the influences considered, it may not wholly explain the process of adoption within SMEs owing to their unique management and size. However, the identification of low usage of ICT provides an opportunity to focus policy and interventions on innovativeness, lack of financing and possible negative social consequences of ICT adoption. Thus, it appears that economic policy and incentives need not be focussed on what previous studies pointed to such as infrastructure, which incidentally is very much improved today.

The current section focused on providing a link between the findings and previously held position about the influence of various factors on ICT adoption in SMEs. Section 6 provides a summary of the main findings concludes the study and makes suggestions for further research on the factors influencing the adoption of ICT by SMEs.

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7 SUMMARY, CONCLUSION AND SUGGESTIONS FOR FURTHER STUDIES Introduction Section five provided a discussion of the findings in light of the theoretical and empirical literature on adoption of ICT innovations. The current section presents a summary of the main findings and concludes the study by examining its objective and how far they were achieved, and finally points at some of its limitations that offer suggestions for further studies.

Summary In section 6.2 we provide a summary of the extent to which SMEs surveyed adopted the use of a set of ICT artifacts and the predictive power of the internal and external factors considered in the study. We begin by summarizing the extent of use before indicating the most important factors explaining the extent of adoption.

Extent of ICT adoption by SMEs The study sought to establish the extent of ICT adoption by asking respondents to state which ICT artifacts they used and how frequency they used the ICT artifacts. Results show that the most heavily used ICT artifact is the mobile phone. The respondents use of landlines was second to mobile phones while e-mail was preferred to fax for written communication. Overall, their use of ICTs did not involve intensive use of the internet and e-mail since most respondents did not report having their own computers. This may suggest basic use of internetworking technologies which support E-Commerce and E-Business applications. This finding may suggest that there is room for SMEs to adopt ICTs that support interoperations and the emergence of digital firms. It is the adoption of such ICTs that can enable SMEs to effectively compete in the global e-commerce and e-business marketplace, and be part of virtual network of firms.

Influence of Internal and External Factors This study considered the influence of seven internal and six external ICT adoption predictor variables. Overall, the results of stepwise multiple regression show that manager innovativeness was the most

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significant predictor variable. Firm size was the second most significant followed by ease of credit acquisition and social impacts of ICT were respectively. Thus only 4 of the 13 variables studies were found to be significant in their influence on the adoption of ICT by SMEs.

Among the internal predictor variables investigated, only two variables were found to be significant predictors of ICT adoption. Those found not to have a significant influence on ICT adoption by SMEs included owner/manager characteristics, such as attitude towards ICT, ICT knowledge and educational level, and firm characteristics like the extent of formalization and centralization. On the other hand, of the external predictor variables studied, 2 proved significant while 4 were found to be insignificant. The insignificant external variables included competitive, customer and supplier pressure, the state of infrastructure and economy, and political influence.

Conclusion This section provides a conclusion to the study by pointing at the implications of the findings given the problem investigated in the work. It outlines what has been achieved by the work and indicates the implications in light of the problem of mainstreaming the role of ICT in enhancing the economic contribution of SMEs. Further, it presents a basis for drawing suggestions for further research by pointing at the possible issues that may not have been addressed, given methodological and conceptual limitations.

The potential for ICT to enhance the economic role of SMEs suggests the need to explore the apparent lack of use of ICT by SMEs in developing countries, such as Kenya. While findings of studies in other social economic environments may shed light on what can be done to enhance SMEs adoption of ICT, they may not be reflective of the internal and external environment of SMEs in other contexts, such as what obtains in Kenya. Thus it may be argued that findings from studies in other contexts may not be of universal application.

The findings from this study seem to suggest that the most important step in enhancing the adoption of ICT is to enhance the owner/managers innovative use of ICT. Further, the findings that firm size, ability to

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obtain credit and the perceived negative social consequences are key influences, suggest a different strategy for enhancing SMEs use of ICT. It can be concluded that what needs to be done goes beyond ensuring the right fiscal incentives, such as zero rating of ICT artifacts, reducing connectivity charges, enhancing ICT education of managers/owners and improving the state of economy.

Much success may be achieved through programmes aimed at enhancing the innovative role of the key decision maker in SMEs, and the ability to acquire and deploy innovative technologies without fear of negative social consequences.

Thus to ensure that ICT enhances SMEs economic role, government policies can aim at enhancing innovative use of ICT and improving SMEs access to financing while enhancing confidence in the use of ICT artifacts through relevant legislation. Perhaps this could ensure that current level of use of ICT by SMEs, for basic communication, is enhanced to that of conducting E-Commerce and E-Business.

Suggestions for Further Studies The exploratory nature of the current study offers several avenues for further study of the possibility of enhancing the adoption of ICT as a tool for enhancing SMEs economic role. The study methodology lends itself to further refinements, especially in the light of the sampling frame and method of analysis. The study focused on urban SMEs and may not be reflective of the position in which rural SMEs find themselves. This suggests the need for a comparative analysis of the influence of some of the key variables identified in the current work. For instance, correlation analysis may establish the exact relationship between some of the factors identified in this exploratory work. In regard to the population, future work may draw its sample from specific or a wider range of sectors.

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For instance, it may be illustrative to examine the influence of various factors in particular sectors, such as those with a potential to engage in E-Commerce and E-Business. Thus future research could explore regional and sectoral variations in ICT adoption patterns within the Kenya.

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QUESTIONNAIRE ON THE LINK BETWEEN MANAGER INNOVATIVENESS AND ICT ADOPTION BY SMEs IN KENYA PART 1: DEMOGRAPHIC VARIABLES (Please tick the appropriate box to indicate your choice)

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1) Ownership of the business

Sole trader 2) Type of business Financial Services Professional Services Hospitality/ Leisure Construction Retail/Wholesale Transport Partnership Corporation

3) Position in the organization hierarchy

Support Staff Middle Management Strategic Management (CEO) 4) Gender Male 5) Age
Below 30 yrs 30- 39 yrs 40-49 yrs Over 50 yrs

Female

6) Highest Education Level Attained

Secondary/Vocational Professional Bachelors Masters

PART 2: EXTENT OF ICT ADOPTION 7) Do you own the following? (Tick the appropriate choice) Computer Cell Phone Personal Digital Assistant (PDA) Fax Internet Connection Yes
Yes Yes Yes Yes

No
No No No No

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(Please tick the box, which reflects your view) 8) Do you have computers installed within your company premises?
Yes No

9)

Does your organization use computers in its daily operations?

Yes No

10)

Please tick if you use the following ICT artifacts

Yes
No

Landline Mobile Phone Fax Internet & Email

11) If Yes to items in Question 28 above, please indicate the extent to which you agree with the following statements about the use of ICT artifacts (items) in your organization

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12)

We use landlines heavily for communication

Strongly disagree Disagree Not sure Agree Strongly agree

1 13)

We use mobile phones heavily for communication

Strongly disagree Disagree Not sure Agree Strongly agree

1 14)

We use fax heavily for communication

Strongly disagree Disagree Not sure Agree Strongly agree

1 15)

We use Internet & Email services heavily

Strongly disagree Disagree Not sure Agree Strongly agree

PART 3: OWNER/MANAGER CHARACTERISTICS (Please circle the choice, which most reflects your view) Please rate the extent of importance of the following ICTs (Please tick the choice which best reflects your view) 16) Computers for office work

Unimportant

Of little Importance

Moderately Important

Important

Very Important

1 17) Internet for e-mail

Unimportant

Of little Importance

Moderately Important

Important

Very Important

1 18)

Internet for hosting your own Web Site

Unimportant

Of little Importance

Moderately Important

Important

Very Important

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19)

Cell Phone for e-banking

Unimportant

Of little Importance

Moderately Important

Important

Very Important

1 20)
Strongly disagree

Computerization improves the quality of my work

Disagree Not sure Agree Strongly agree

1 21)

I am very knowledgeable about ICTs

Strongly disagree Disagree Not sure Agree Strongly agree

1 22)

Culture influences my decision to use ICTs

Strongly disagree Not sure Agree Strongly agree

1 PART 4: FIRM CHARACTERISTICS

(Please tick the appropriate box to indicate your choice) 23) Size of business (Number of employees)
< 10
101 - 150

10- 50

51- 100

151 -250

> 250

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To what extent do you agree with the following statements about your firm? 24) It is easy for the firm to acquire loans from Banks/Financial institutions
Strongly disagree Disagree Not sure Agree Strongly agree

1 25)

Decision making is centralized and made by owner/manager

Strongly disagree Disagree Not sure Agree Strongly agree

1 26)

The management structure of the firm is well defined with clearly defined job descriptions for all everyone in the organization
Strongly disagree Disagree Not sure Agree Strongly agree

1 PART 5: EXTERNAL FACTORS

(Please circle the option which best reflects your view) 27) The state of the countrys economy will determine whether my organization will adopt Information Technology or not
Strongly disagree Disagree Not sure Agree Strongly agree

1 28)

The cost of technology will influence my decision to adopt ICT

Strongly disagree Disagree Not sure Agree Strongly agree

1 29)

The state of the countrys Information Technology infrastructure will influence my organizations decision on whether or not to adopt IT
Strongly disagree Disagree Not sure Agree Strongly agree

1 30)

Adopting ICT will give my business competitive advantage over my business competitors (increased number of customers and higher profitability)
Strongly disagree Disagree Not sure Agree Strongly agree

1 31)

Politics influences my decision to adopt ICT.

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Strongly disagree

Disagree

Not sure

Agree

Strongly agree

1 32)

Are the suppliers you deal with using ICT? (Tick the appropriate choice)
Yes No

33)

Do you feel that the use of ICT has negative social effects in your business (Ethical and Moral effects)?
Strongly disagree Disagree Not sure Agree Strongly agree

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