Presentation of my Bachelor

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Presentation of my Bachelors thesis on Key
success factors of small software firms and an
overview of articleImplementing enterprise
resource planning and knowledge management
systems in tandem fostering efficiency and
innovation complementarity

• Presentation for ITK B54 Research Seminar on
  Software Business
• By
• Peter Törnroos
• 20.5.2003

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Key success factors of small software firms -
Outline

• Introduction
• Identifying key success factors
• Importance of small businesses
• Key success factors of small software businesses
• Flexibility
• The importance of leadership and software talent
• Networking
• Customer relations
• Operational efficiency
• Challenges of small software businesses
• Uncertainty
• Internalization
• Corporate venturing
• Literature and research of small businesses
• Conclusions, Criticism and Discussion

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Key success factors of small software firms -
Introduction

• This part of the presentation is based on my
  bachelors thesis of the same topic
• In this presentation I will also bring up issues
  that I had to left out from my bachelors thesis
  and give an overview of small businesses

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Identifying key success factors

• In my thesis key success factors are defined as
  factors that are critical for best performance,
  rather than performing good enough to keep alive
  (critical success factors)
• There are many buzz words that have in some
  extend the same meaning
• sticky factors vs. key success factors (same
  meaning according Ketelhöhn)
• essential competencies, plain competencies, core
  competencies, spillover competencies, protective
  competencies, parasitic competencies
• are all these buzz words really needed?
• There are KSFs for everything
• product launch
• brand management
• anything that challenges an organization
• In my thesis the context is small software
  businesses

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Importance of small businesses

• Many governments see small software firms as
  important employers and builders of international
  competitiveness of future and therefore support
  their efforts (Ireland as a good example for
  supporting high-tech start-ups)
• Small software businesses
• Bring healthy competition
• Introduce markets new ideas and solutions
• Software embedded in the products and services of
  other industries
• Can occupy positions that larger firms cant
  economically enter or dare not go, expect by
  corporate venturing
• The importance of small software companies is
  indicated by an Austrian study which states that
  micro enterprises account for 55,7 per cent and
  small-to-medium enterprises 32,2 per cent of the
  Austrian software organizations

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Nature of software business

• Fierce competition
• Technologies change fast, industry evolves
  rapidly and in unexpected ways
• High uncertainty over markets and technology

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Key success factors of small software firms
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1. Flexibility

• One main reason for the success of small
  companies
• Possibility to adapt rapidly to new circumstances
  and tap opportunities
• Identifying new opportunities and market niches
• When focusing on market one has to be able to
  change the direction of the company when things
  go wrong

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2 The importance of leadership and software talent

• small firms core employees consists of managers
  that usually own the company
• Low hierarchies between employees
• Important characteristics of business leaders
• previous experience on technology
• knowledge of the industry
• experience on entrepreneurship
• Successful leaders identify opportunities that
  others can consider as too high risks or do not
  believe in them
• developing new innovative ideas one must take
  risks
• Downside of taking risks are mistakes
• mistakes can be corrected and they need to be
  corrected fast to steer the company in more
  successful direction

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3 Networking

• The most important challenge for SMEs is their
  lack of resources
• Resources can be gained through networking and
  partnering
• Previous working relationships, families, friends
  and acquaintances are important sources of advice
  and information
• There is great number of mechanisms of how to
  relate to external organizations

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Other key success factors

• Importance of customer relations
• The research of tiger SMEs in Singapore
  identified good client and customer relationships
  as the sixth important KSF
• Frequently satisfying customer needs (identifying
  and meeting)
• Alliances and concentrating on few customers for
  better communication
• Operational efficiency
• Any system, like any argument, is as strong as
  its weakest link (Ketelhöhn in What Is a Key
  Success Factor? )
• The resources that small software businesses have
  offer the opportunity to grow and perform well,
  but they have to be exploited thoroughly in order
  to achieve good results

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Challenges of small software firms
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Uncertainty

• The uncertainty of markets presents challenges
  for high-tech SMEs and larger enterprises
  respectively
• Uncertainty can be derived into two categories
• The buyers can be uncertain, because they dont
  have experiences on the product and
• Certain market circumstances such as
  heterogeneity and chancing technologies set
  requirements for customers ability to handle
  information

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Sources for market uncertainty
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Sources for technological uncertainty
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Internalization

• Internalization is brings both opportunities and
  a threats for small software businesses
• Opportunities
• Larger market share
• More sources for revenuethicker skin against
  market ups and downs(European companies face
  problems derived from small markets and cultural
  issues)
• Low barriers
• Threats
• Brings competition to local markets from foreign
  companies

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Corporate venturing

• Can be seen as way for larger companies to
  compete against smaller players
• Ventures have the same structure as a small
  company would have
• Can compete in the same markets, which are
  usually niche markets
• Develop software for small market, can be highly
  specified user group, such as professional
  software
• Brings a high threat to smaller companies,
  because ventures have the financial and other
  resources to back their business by the big
  corporate

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Literature and research of small businesses

• There isnt much research done from the small
  businesses point of view even though there is no
  arguing that small firms are important for the
  development of software business and economy
• The issue of lack of previous literature is
  stated in many research articles that I have
  studied
• Perhaps my masters thesis will give a
  contribution to the field of small businesses
• Preliminary topic Networking of high-technology
  firms A technology and resource based view

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Conclusions

• There are KSFs for everything industry,
  strategies and company itself
• KSFs have a substantial impact on the success of
  a company
• The most important KSF of small software firms is
  their ability to adapt to no new circumstances
  rapidly
• Small software firms encounter challenges derived
  from their limited resources
• Can be tackled by networking (gaining resources)
• Mastering only KSF isnt enough for a company to
  be successful they just prepare the company for
  the fierce competition

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Criticism on the thesis

• KSFs that are identified are universal in nature
  and dont reflect software SMEs in depth
• KSFs are drawn from a wide variety of literature
  and they have a major impact on the way issues
  are discussed
• literature of KSFs from other industries
• nature of software business differs greatly from
  traditional industries
• I have only theoretical base to understand
  software business and I cannot in depth compare
  how these KSFs would be adopted to practical
  level of doing business

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Criticism on the thesis (cont.)

• I identified an important KSF that is flexibility
  and adapting rapidly to new circumstances
• literature I reviewed didnt address this factor
  directly and this is why that issue wasnt
  discussed in depth in the thesis
• As the emphasis was on identifying KSFs the
  number of these factors made it impossible to
  discuss each factor in depth
• Internalization is left out in order to keep the
  information manageable for this sized thesis
• Keeping the talent in house can be a major
  challenge for a small software firm, but the
  current situation in Finland seems to be that
  there are a lot professionals out there in the
  field of IT

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Discussion

• Even though it is widely identified that SMEs are
  flexible there are also researchers that dont
  agree
• Naumanen, M., 2002. Nuorten teknologiayritysten
  menestystekijät
• Current situation of economy and the shape of IT
  field
• more small businesses
• more possibility to tap

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

• Authors
• S. Newell, J.C. Huang, R.D. Galliers and S.L. Pan
• The paper examines the simultaneous
  implementation within a single organization of
  two contemporary managerial information systems
• Enterprise Resource Planning (ERP) and
• Knowledge Management (KM)
• The study is done through interpretative single
  case method

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Introduction

• In this part of the presentation I will discuss
  the conceptual framework and findings, leaving
  out the case description
• I will emphasize the findings on organizational
  efficiency and flexibility of the study
• Implementation of multiple systems is likely to
  produce effects that differ from implementing a
  single system
• The focus of the paper is to investigate the
  simultaneous implementation of IS/IT concepts
• ERP and KM
• As both ERP and KM systems are currently being
  widely implemented across organizations in all
  probability they are implemented simultaneously
  or at least their implementations are overlapping

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Characteristics of ERP

• Enterprise-wide packages that tightly integrate
  business functions into a single system with a
  shared database
• Comprehensive software solutions that integrate
  organizational processes through shared
  information and data flows
• ERP systems can play an important role in
  increasing organizational competitiveness through
  improving the way in which strategically valuable
  information is produced, shared and managed
  across functions and locations
• ERP systems are promoted as systems that will
  improve organizational efficiency through both
  enhanced information capture and organizational
  redesign around defined best practices

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Characteristics of KM

• KM systems emphasize how firms can enhance
  competitive advantage through more effective
  utilization of their knowledge assets
• Achieved by free flow of knowledge across
  organizations
• Different approaches to KM
• Personalization and codification strategy
• Firm cannot be strong in both (80-20 rule)
• Personalization face-to-face communication
• Codification transferring documents through IT
• Cognitive and community approach
• Cognitive transfer of explicit knowledge where
  users have common understanding
• Community approach sharing of tacit knowledge in
  case of multi-disciplinary teams

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Characteristics of KM (cont.)

• Distinction between personalization/community
  approach promote either efficiency or flexibility
• First generation KM
• Emphasize on dissemination, imitation, and
  exploitation
• Second generation KM
• Emphasize on education, innovation, and
  exploration
• Focus shifts from the supply of knowledge to
  creation and maintaining knowledge
• The case company was very much within the frame
  of the second company

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Background on efficiency and/or flexibility

• The trade-off between efficiency and flexibility
  is perhaps the most enduring in organization
  theory
• Mechanistic structures are characterized by high
  degrees of standardization, specialization and
  hierarchy organic structures structures are
  characterized by low degrees of each of these
  aspects of structure
• These opposing structures have formed the idea
  that organization either had to focus on
  efficiency or flexibility
• There are now a few writers who haw suggested
  that it is possible to be both efficient and
  flexible at the same time
• Term used ambidextrous (using both hands)

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Mechanisms for ambidextrous organizations

• Metaroutines
• Routines to standardize internal processes that
  focus on flexibility or innovation
• Non-routines to more specified processes
• Job enrichment
• Motivation potential is increased
• Through increased autonomy and responsibility
• Giving flexibility to routine tasks
• Switching
• Person is given time to spend on non-routine
  tasks and then switched back to routine tasks
• Partitioning
• Divisions of tasks that are defined to certain
  group of the organization
• E.g. RD focuses on innovation while production
  department focuses on efficiency

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Objectives of the company
Objectives and characteristics of the ERP and KM in Company A Objectives and characteristics of the ERP and KM in Company A
Objectives and characteristics of ERP Objectives and characteristics of KM
Replacing diverse legacy systems, so creating a common IT structure Creating innovation communities including suppliers and retired staff
Creating a common productivity measure Continuous learning and training
Restructuring production, logistics and warehouse divisions Creating an intranet for storing and sharing information and knowledge
Centralized procurement Building strategic partnerships with suppliers
Efficiency improvement through improved information sharing Improving innovation and flexibility through improved knowledge sharing and creation
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Research findings

• Both systems were judged by organizational
  members to be successful
• Within Company A the ERP and KM initiatives were
  complementary rather than contradictory
• Each system was designed and implemented for
  clear managerial purpose
• Managing organizational information to improve
  efficiency or knowledge to improve innovation

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ERP and KM initiatives

• Implementation of SAP (the selected ERP system of
  the company) has drastically improved the time to
  produce and gather critical information for
  strategic decision making
• Help in effective coordination activities from
  SAP
• The implementation of KM was found to facilitate
  the effective and systematic exploitation and
  exploration of knowledge
• Both intra- and inter-organizationally
• Improved continuous learning from past actions
• Organization of innovation communities created an
  environment where products and processes were
  constantly under evaluation
• Involvement of retired engineers and suppliers

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Organizational efficiency and flexibility

• Impact of implementation of ERP and KM to
  suggested mechanisms (transparency) in Company A
• Partitioning
• Pre-existed in Company A and had not really been
  influenced by the ERP and KM initiatives
• On the other hand efficiency and flexibility were
  achieved achieved simultaneously by different
  divisions
• The KM initiative had opened up opportunities for
  improving flexibility even in divisions where
  efficiency was the primary goal

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Organizational efficiency and flexibility (cont.)

• Metaroutines
• Both ERP and KM appeared to promote the enactment
  of metaroutines
• Adoption of ERP enabled standardized activities
  of information processing and management
• New organizational processes were designed and
  implemented to maximize the potential of ERP
• The KM initiative transformed continuously
  non-routines to routines while ERP stopped this
  process once the system was implemented and
  solidified processes

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Organizational efficiency and flexibility (cont.)

• Job enrichment
• The ERP system hindered enrichment because it
  encouraged process dependencies on pre-defined
  routines
• The ERP system did not take into account
  non-routine tasks
• Maximized efficiency with the cost of flexibility
• The KM initiative encouraged innovative
  communities to generate knowledge on non-routine
  basis
• Forming of various pilot teams for process and
  product innovation

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Organizational efficiency and flexibility (cont.)

• Switching
• The ERP system also hindered switching activities
  in some divisions
• E.g. The Product division has to have
  standardized activities to accomplish following
  advantages
• Predictability
• Feasibility
• Efficiency
• The KM initiative encouraged switching in
  particular through involvement in training and
  participation in innovation communities
• Ability to exchange, reassess and refine what he
  had learned in routine work

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Conclusions

• The study has demonstrated how a particular
  organization was able to promote both
  flexibility/innovation as well as efficiency
• ERP and KM initiatives revealed that the two
  systems can be successfully implemented in tandem
• While ERP emphasizes the improvement of
  information processing efficiency, KM can
  facilitate the simultaneous development of
  organizational knowledge exploration and
  exploitation capability

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Criticism

• The study did not discuss in more depth that
  should different divisions implement both ERP and
  KM
• E.g. is there any use for KM in the production
  department and if it is implemented, what should
  be the proportion between the use of ERP and KM
  in daily routines and activities (80-20 rule)