Micro Business Use of Technology and Extension's Role

Introduction

According to the Small Business Administration (Pratt, 2002), "technology, telecommunications and the Internet are changing the way businesses market and provide products and services." The technology movement both pushes and pulls businesses towards adaptation and adoption of new and modified business strategies. The pull may be a result of consumer demand and increased efficiency, while the push grows out of the need to communicate with suppliers who adopt on-line ordering systems. Both factors are reasons for business owners to recognize the power of technology and analyze its potential in their business.

The term "technology" may be applied to a number of products and services such as computers, telephone systems, and security devices. Each type of technology brings unique benefits to firms. Personal computers (PC) and the Internet are the two examples of technology often considered the most revolutionary in changing the way business works. Large businesses have adapted new technologies as part of their strategies to remain competitive. Likewise, small businesses are utilizing technology at an increasing rate (Pratt, 2002).

Yet little is known about the use of technology among micro businesses, those businesses employing 10 people or fewer. For micro business owners to remain competitive, they will need to adopt new technologies into their business operations. The purpose of the study reported here was to understand how technology, largely PCs and the Internet, is used in Oklahoma micro businesses and to suggest ways to increase adoption and use. The role of the Cooperative Extension Service working as a catalyst for technology adoption was also explored.

Supporting Literature

Small and Micro Businesses

In the United States, over 99% of businesses are considered small, defined by the SBA as employing fewer than 500 people. These businesses employ 51% of the workforce and produce 52% of the gross domestic product (Henderson, 1997; Pratt, 2002; U. S. Census, 2001). Small businesses are an integral part of a market economy and a prime provider of goods and services in the dynamic environment where the ability to change is crucial to long-term viability (Sexton, 1999; Small Business Administration, 1998).

The difficulty with SBA's small business definition is that it is overly broad. The micro business segment, those employing 10 or fewer employees, represents the heart of the American economic engine. According to Devins (1999), 94% of all firms and 84% of employer firms would be classified as micro businesses.

First, this segment created 69% of all new jobs in the 1990's (Sexton, 1999). Micro businesses employ as many as 25% of all workers in total (Family Economics and Nutrition Review, 2001; U. S. Census, 2001). Second, micro businesses generate 13% of all receipts, with receipts from self-employed individuals operating unincorporated businesses not even counted (Family Economics and Nutrition Review, 2001; U. S. Census, 2001). Third, micro businesses represent the source of most new innovations and patents (Pratt, 2002, 2003).

In a rural economy, the role of the micro business is even greater. In Oklahoma, 77% of employer firms and nearly 99% of all firms are micro in size, and they employ 13% of all workers. These entrepreneurial firms can represent a substantial portion of the difference in economic growth among communities (Reynolds, Hay, & Camp, 1999). Micro businesses create jobs, increase local income and wealth, and connect the community to the larger, global economy (Henderson, 2002).

Often little consideration is given to this subgroup, the micro business, in terms of research or how they may differ from other "small businesses." The owners in this subgroup may face different issues, or similar issues may have different "best solutions." One such example may be the differences in the utilization of technology between the micro and the small business firm.

Information and Communication Technology (ICT)

Information and communication technology (ICT) is widely thought to have changed the way in which firms do business. Businesses of all sizes have the opportunity using ICT to:

• Enhance the company's efficiency and effectiveness;

• Reach and service new and existing consumers in the global marketplace; and

• Increase communication with current and potential business partners (Baker, 2000; Emmanouilides & Hammond, 2000; Griffith & Palmer, 1999; Kleindl, 2000; Pratt, 2002; Southern & Tilley, 2000; Thong & Yap, 1995).

ICT may allow small businesses to compete with larger firms (Emmanouilides & Hammond, 2000; Jones, 2000; Kleindl, 2000). Estimates of the number of small firms using computers range from 27% to 68% (Emmanouilides & Hammond, 2000; Pratt, 2002; Southern & Tilley, 2000).

Yet little is known about whether these same use patterns are true among micro businesses. The assumption is that all businesses benefit from increased ICT use (Southern & Tilley, 2000). Bridge and Peel (1999) and Griffith and Palmer (1999) found that companies with more detailed business strategies tended to incorporate ICT into the business environment and that the smaller businesses were less likely to utilize ICT.

But the use of ICT in the micro business may be hindered for several reasons. First, because the owner is often also the ICT specialist, he or she must not only decide if ICT is right but then must implement and operate the system (Graham, 2000; Jones, 2000; Kleindl, 2000). Second, there may be cost barriers to incorporate the appropriate hardware, connections, and software. Applications such as electronic data interchange (EDI) are often prohibitively expensive for small firms, and yet, without EDI capabilities, smaller firms may be unable to take advantage of the financial discounts that EDI processing can offer (Vlosky, 2000; Wilson, 2000). Third, Henderson (2002) suggests that among rural micro businesses, access to high-speed broadband access may be limited and toll charges may apply just to reach a dial-up service, if service can be found at all (U. S. Dept of Labor, 2001).

The objectives of the study reported here were to examine ICT usage among Oklahoma micro-businesses. Specifically, the study examined the following questions.

1. How is ICT used by micro businesses in Oklahoma?
2. What kinds of applications are used by these businesses?
3. What do the findings mean in terms of Extension's mission?

Methodology

The sample was drawn by compiling lists provided by the Oklahoma State University Food and Agricultural Products Center, the Oklahoma Department of Agriculture, and the Oklahoma Cooperative Extension Service Home/Micro Business program. Owners on these lists had previously identified themselves as owning a value-added business. It is important to recognize that two of the three sources of names are often traditionally identified with agriculture and agriculture-related businesses. A screening question asked about the business size in terms of number of employees. Only the owners of micro business firms, defined as those with a workforce of 10 people or fewer, were interviewed. The employees could be working either full- or part-time.

The Oklahoma State University Bureau of Social Research conducted telephone interviews, each lasting between 20-30 minutes. If there was no answer to the phone call, three additional contacts were attempted at other times and days. Seventy percent of the 274 owners identified, or 193 owners, responded to the survey. Questions concerned technology use, ownership characteristics, business goals; and success as defined by profit. Data was analyzed using SPSS software. It is important to remember, when considering transferring this study to potentially other audiences, that the focus was on value-added products and that the sampling frame was developed from agencies often identified as having an agricultural background.

Results

Description of Owners

Eighty-three percent of the owners were involved in a product/production business. Overall, 37% were producing food products, with the remaining 46% involved in another product/production-related business. Twelve percent had service firms, and 4% were in retail sales. The current owners had started 74% the business, and 44% were sole proprietorships. Firms were located in rural areas or on farms 48% of the time, with 24% in cities with populations greater than 50,000. Sixty-nine percent of the firms employed one to three workers, including the owner, and an additional 38% of the owners worked by themselves. Regarding outside employment, 31% of the owners and 46% of the spouses worked outside of the business. Males represented 54% of the sample, and 88% self-identified as white. Median age for owners was 52 (Table 1).

Sales and Profits

Firm sales were made in a wide geographical area, with the predominant area locally. Fifty percent of firms indicated that customers within 50 miles of their businesses generated one-half of their sales, and 27% indicated that 75% or more of sales take place within that 50-mile radius. Only 12% of owners indicated that 50% or more of sales were generated outside of that 50-mile circle but still within Oklahoma. When examining international sales, 1% reported that half their sales were international, while 76% reported no international sales at all.

Profits at these firms varied widely, with more than a quarter earning no profits and only about 10% earning more than $50,000. With an estimated average annual profit of more than $35,000 per firm, the group added a total profit of nearly $6 million dollars to the Oklahoma economy (Table 2).

Technology

The micro-businesses owners were active users of technology, with 77% (148 owners) using a computer in the business. Of the 148 owners who used a computer, 95% used e-mail, 87% word processing, 80% kept electronic financial records, and 62% did graphic design. More than 50% of the respondents used computers for desktop publishing and accessing databases. Although the computer industry has claimed that application service providers (ASP) are the wave of the future, most of these respondents have yet to use ASPs (Table 3).

Sixty-six firms, or 34% of the owners (45% of the technology users), had a business Web site, and 50 of these firms use these sites to conduct sales. Thirty-four other business owners indicated they sold products and services via the Internet without having a Web site. More than half of the firms used technology for both business-to-consumer and business-to-business sales.

Sixty percent of the firms' Web sites had been operating for more than a year, and 12% more than 4 years. The Web sites provided customer information and service, generated sales leads, and provided marketing information. Most owners had assistance in designing and building the Web site, but many maintain the site themselves. Annual Web site expenses were modest, with most spending less than $1,000 per year. Revenues were modest as well, with most firms realizing Web-based sales of less than $4,500 annually. There was no significant correlation between Web site revenues and Web site expenses. In other words, investing more in a Web site did not generate more revenue for these firms.

Web sites generated average annual profit of $6,680, yet only 4% of firms said these profits added to the overall firm profitability. A substantial difference in profitability was noted due to the longevity of the Web site. Those who had launched the Web site earlier had substantially higher profits than those with newer Web sites did. Web sites in existence more than 20 months had profits of $10,339 versus $3,021 for newer Web sites. Firms with a Web site were also more likely to have higher sales outside of a 50-mile radius surrounding the business. In particular, United States sales increased from 8% to 24% for Web site owners.

Owner satisfaction with the Internet varied widely, with most rating their connection as good to excellent (56%). Satisfaction with their Web site varied as a function of their satisfaction with revenue generated (F = 77.09, p = .00). Owner satisfaction with the number of contacts generated by the Web site was evenly distributed, with slightly more satisfied owners than unsatisfied owners. The opposite pattern was seen for satisfaction with Web site sales, with slightly more owners expressing dissatisfaction as opposed to satisfaction with sales.

Although not reported here, a comparison of rural and non-rural businesses found no differences in level of total sales, who used computers, who had access to the Internet, or who had a Web site. A slight difference was found among rural owners, who reported slightly slower access speeds to the Web.

Open-ended comments concerning problems with the Web sites included a number of common complaints. Technical glitches were noted, from getting the site set up to the inability of search engines to bring up their sites. Keeping it current was also an issue, whether the firm updated themselves or outsourced the work. However, many firms reported no particular problems. None of the reported problems were unique; they are frequently reported technology problems.

Those who have adopted technology had done so with the goal of improving efficiency (65.3%). Few used technology to reduce the workforce. Specific technology adopted was for product, market, and/or management reasons.

Regarding how owners would like to receive continuing education, technology was not among the preferred methods (data not shown). Only 20% wanted to learn through an on-line course, and only 22% wanted to acquire information via the Web. The preferred method of learning was through seminars (62.1%).

There was no difference in preferences between those who had Web sites and those who did not. Familiarity with technology apparently does not influence the manner in which owners prefer to acquire information. Seminars may be preferred for a number of reasons, including the opportunity for interaction with peers, the ability to ask questions and get more or less immediate answers, the availability of experts for one-on-one consultation, and the social aspects of going where others are gathered.

Discussion and Implications

The micro business is an important element of the American economy, providing both financial and non-financial benefits to the owners. ICT is often seen as a way for small businesses to compete in the global marketplace. These micro-business owners were relatively active users of ICT and used it in a variety of ways to enhance their business. More than 80% of micro business owners used ICT to access the Internet, do word processing, and keep financial records.

Business owners found technology helpful for customer service, marketing, and information searching. For those owners with Web sites, the sites did generate sales and additional profit. Both sales and profitability did increase substantially, although not significantly, the longer the firm had a Web site.

In a separate report, analysis of where sales were made found that businesses with Web sites had significantly larger sales outside of their immediate trade area (Muske & Woods, in press). In an SBA (Pratt, 2002) study, 35% of small businesses with Web sites gained sales of 10% to 99% directly from their Web sites. Even though Web sites did increase contacts, sales, and profitability, there was a mixed response as to the owner's satisfaction with the returns. This may reflect the owner's often anticipated high expectations not being fully met.

Several opportunities exist, then, for Extension to play a role in helping micro business owners understand and incorporate technology in the business. Such ideas include the following.

• Help owners understand technology, its role, and its future within the business community.

• Develop a cost-benefit analysis of ICT. Reinforce realistic expectations of Web sites.

• Aid the owner in learning to use ICT, both hardware and software. Examples include programs such as:

       • Accounting software such as Quicken®

       • Presentation software such as PowerPoint®

       • Graphics and design programs

• Assist them in gaining access, either directly or indirectly, to competitive ICT networks.

• Help owners evaluate the need for a Web site and then to provide resources to help them develop it. Access Minnesota Main Street is a good example of such an Extension effort.

• Work with Web providers to better understand the micro business owner's needs.

• Help owners understand that more costly Web sites may not mean more profits. Instead it is important to market the Web site address and work on building profits over time.

• Educate owners about the benefits of ICT to help them overcome their voiced concerns of lack of time to learn, lack of motivation to learn, and simple disinterest.

• Develop integrated customer service programs that show how ICT can be used without making the business seem less personal and having less customer service.

Technology is here to stay, and ICT can help businesses be competitive. Business owners were anxious to receive ICT training and help. Owners who had worked with the Cooperative Extension Service (n=57) and had a Web site were slightly more likely to show a larger business profit (x² (57,2) = 4.886, p = .082) (data not shown in tables).

Extension is uniquely positioned, through its work in business and community development, to encourage ICT used among micro business owners. Extension educators must remain aware of technology changes and pass that information along to business owners. Extension can also help micro business owners understand and identify appropriate ICT and then implement it within the business.

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