Technology usage and innovation: Its effect on the profitability of SMEs

Abstract

Purpose

The purpose of this paper is to determine if firms that invest in information technology (IT) and innovate are more profitable than those that do not and to analyze how firms in general and on the island of Puerto Rico, in particular, have found an avenue to compete, grow, and become profitable using technology in production and service, and by extending into the use of electronic commerce. Some recent investigations find that investments in IT do not lead to productivity improvements as measured by accounting standards. Earlier research identified four factors that can lead to such a paradoxical finding.

Design/methodology/approach

The present investigation was undertaken to evaluate, utilizing a case method approach, the extent to which small and medium firms in different industries are prone to this paradoxical condition. Six firms identified in Puerto Rico were contacted to obtain both qualitative and quantitative information from senior officers and CEOs through personal and telephone interviews.

Findings

Utilizing the four factor influence on productivity output of IT investment in each of the present case, the findings show that their effect and subsequent limitations on the broadly defined output measure is minimal. Thus the findings show improved productivity and growth in each of the cases.

Research limitations/implications

A major limitation of the present study is the lack of (proper) quantitative data both at the input stage of IT investment and the output stage of quantitative measures.

Originality/value

The paper is of value in illustrating how small and medium enterprises can successfully adopt and incorporate IT while assuming the necessary investment costs, reaping the benefits of productivity, profitability, and growth within a reasonable span of time.

Citation

Hamilton, L.C. and Asundi, R. (2008), "Technology usage and innovation: Its effect on the profitability of SMEs", Management Research News, Vol. 31 No. 11, pp. 830-845. https://doi.org/10.1108/01409170810913033