Informatization Promotion Strategies for SME Management Innovation in APEC in the Digital Economy

1. Informatization Promotion Strategies for SME Management Innovation in APEC in the Digital Economy Prof. Ook Lee, Ph.D.College of Information and CommunicationsHanyang UniversitySeoul, Korea(South)

2. Table of Contents • 1. Introduction • 2. Informatization Network Cluster Utilization • 3. Characteristics of Information Systems which are effective in producing positive result for SMEs • 4. Government Policy for Informatization which facilitates growth of SMEs • 5. Solving Digital Divide Problem among APEC member countries • 6. Policy Direction emerged from Case Studies of SMEs in terms of Informatization • 6.1 The Philippines • 6.2 Indonesia • 6.3 Australia • 6.4 USA • 7. Best Practices in Management Innovation Utilizing Information Technology • 7.1 Best Practice Case #1: Bank SinoPac(Taiwan) • 7.2 Best Practice Case #2: Commonwealth Bank of Australia(Australia) • 7.3 Best Practice Case #3: Heineken USA(USA) • 8. Conclusion

3. 1. Introduction • In the digital economy, enterprises need to adopt digital technology to compete effectively. • SMEs can be benefited especially from informatization. • This study investigates informatization promotion strategies for SME management innovation in APEC member countries. • It is obvious that SMEs will find it difficult to invest in ICT since they usually lack sufficient fund and resources. Thus the role of government policy is important in facilitating informatization of SMEs. • ICT is essential in successfully performing innovation in management of SMEs.

4. 2. Informatization Network Cluster Utilization • Network clustering implements communication infrastructure for SMEs in a certain region which includes high-speed/broadband Internet network. • This approach lets SMEs to share value-added service from advanced communication infrastructure, which might result in reducing the problem of digital divide. • South Korean government implemented this policy of creating regional clusters with government fund. • The Korean model also needs more improvement since it lacks effective follow-up network utilization policy such as promoting advanced value-added services, e.g., Internet-based EDI, VoIP, Extranet, e-SCM, and e-CRM.

5. 3. Characteristics of Information Systems which are effective in producing positive result for SMEs • Most of advanced information systems such as MIS, DSS, EIS, ES, ERP, CRM, and SCM were implemented for large businesses. However SMEs also need these advanced information systems which will give them competitive advantage and a tool for more effective control of their businesses. • Following characteristics are required for an advanced information system that is intended for the use in SMEs. 1. Size should be appropriately small. 2. How to use should be easy to learn. 3. Implementation process should not be too complex. 4. Hardware requirements should not exceed what the particular SME has as its infrastructure.

6. 4. Government Policy for Informatization which facilitates growth of SMEs • Empirical evidences often show mixed results on the effect of informatization especially with measure such as revenue, stock price, market share, etc., which is, in general, called “IT Productivity Paradox”. • Where have all the benefits of informatization gone? Following areas can be cited. 1. Operational Efficiency: informatization on manufacturing often results in gains in efficiency of operation. 2. Customer Satisfaction: even if there is no visible effect due to informatization, the benefit could have been already materialized as more customer satisfaction. • government policy should take an aim at the following points. 1. Support of informatization of SMEs in order to increase operational efficiency such as manufacturing information systems, SCM systems, communication infrastructure build-up, and e-business. 2. Support of informatization of SMEs in order to increase customer satisfaction such as CRM systems, and e-business. Overall, ultimate goal of government policy must emphasize e-business.

7. 5. Solving Digital Divide Problem among APEC member countries • APEC member countries are composed of the ones with highly developed national IT infrastructure and others with very less developed national IT infrastructure. Thus there exists a serious digital divide problem in the APEC region. • One way to solve this problem is to create informatization frontier teams whose members are recruited from advanced countries. • These teams can be sent to less developed countries to solve digital divide problems as done in medicine, food and education. • These teams will provide PCs and software education and if possible, some communication infrastructure building.

8. 6. Policy Direction emerged from Case Studies of SMEs in terms of Informatization • In order to find the appropriate policy direction, case studies were conducted through web sites, e-mail-based survey and physical visits where possible.

9. 6.1 The Philippines • PhilStar.com is an online news portal company which provides local news of the Philippines to worldwide audience of Filipino people. • A. hardware: 5 HP servers, software: Apache web server and Oracle database, networks: Notel backbone. • B. IT investment: US$0.5million, IT education level: very high, User experience and knowledge: very high. • C. Top management’s view on IT: very positive. • D. Current business environment: Buyers: banner advertisers, Vendors: none, Large firms: yahoo.com and cnn.com which are multinational portals, Alliance: Philippine Star newspaper which is a sister company to PhilStar.com, Industry: news portal market is dominated by multinational portals in the Philippines with the niche market of exotic and sensational local news market available for a company like PhilStar.com.

10. 6.2 Indonesia • Daytona, PT Company is a manufacturer of car accessory specializing car seats. • A. hardware: 3 Pentium II PCs, software: Java and MS Access database, networks: no local area network, only dial-up internet connection. • B. IT investment: US$0.01million, IT education level: low, User experience and knowledge: low. • C. Top management’s view on IT: interested in web technology. • D. Current business environment: Buyers: Automobile manufacturers, Vendors: none, Large firms: no large firms operate in this area, Alliance: none, Industry: automobile car seat manufacturing area is mainly populated with SMEs whose informatization level is quite low; however this company noticed the advertising effect of web sites and published introductory pictures and descriptions in their web site; but due to lack of technical skill on e-business technology, there is no e-commerce(buy/sell on web site) capability available on their web site.

11. 6.3 Australia • Fast Enterprises Pty Ltd. is an online flower delivery company with the URL of www.fastflowers.com.au • A. hardware: 12 HP servers, software: MS IIS and MS-SQL database, networks: intranet, extranet, high-speed Cisco backbone. • B. IT investment: US$5.1million, IT education level: very high, User experience and knowledge: very high. • C. Top management’s view on IT: very positive. • D. Current business environment: Buyers: web users, Vendors: Fastflowers Sydney shop, Large firms: no large firms operate in this area, Alliance: alliance with many overseas flower online flower delivery companies which allows the company to be able to deliver flower almost anywhere in the world, Industry: even though there is a heavy competition in flower delivery industry in Australia, utilizing advanced national IT infrastructure effectively, the company grows to a large scale online flower delivery firm which covers the globe.

12. 6.4 USA • Ostergard Gynecology & Female Urology Partnership/Medical Group is a small hospital which specializes in uro-gynecology • A. hardware: 5 Pentium II PCs, software: MS office, MS frontpage, MS Access database, networks: no intranet, connection to outside high-speed Internet available. • B. IT investment: US$0.02million, IT education level: medium, User experience and knowledge: medium. • C. Top management’s view on IT: somewhat interested in web technology for PR purposes. • D. Current business environment: Buyers: patients, Vendors: none, Large firms: this area is dominated by large general hospitals; however this small hospital attracts many patients due to the fame of Dr. Ostergard, Alliance: since Dr. Ostergard can not perform so many surgeries simultaneously, UCLA and UC-Irvine university hospitals are in alliance with this hospital; very difficult surgery often requires an excellent surgeon rather than any advanced technology; thus IT is mainly used for administrative purposes and advanced features such as online appointment, streaming video of surgery, and chatting function are not implemented.

13. 6. Policy Direction emerged from Case Studies of SMEs in terms of Informatization(cont.) • By contrasting the previous 4 case studies, we can point out following differences in informatization policy among APEC member countries. • 1. Among two companies of under-developed countries, one was much informatized while the other was not at all. Thus an assumption that informatization of SMEs will be minimal in all under-developed countries does not stand. They pursue informatization if they see a business need in it. • 2. In advanced countries, because of well-developed national IT infrastructure, companies utilize many complex information systems as seen in Australia’s flower delivery company case. However even on very advanced national IT infrastructure such as US’s, some firms do not implement high-level information systems as seen in Ostergard hospital case. This confirms the principle found from under-developed country cases that informatization of a firm is dictated by the law of business need. Namely when the company’s business is doing well at the current level of informatization, the company won’t try to pursue higher level informatization. • Educating executives on the benefit of informatization regardless of level of informatization of the country where the company is operating should be an essential program in government policy.

14. 7. Best Practices in Management Innovation Utilizing Information Technology • When IT is well used for the business organization, it can induce management innovation which, subsequently, produces lots of benefits. • To achieve this, business process redesign method should be applied where all aspects of business activities in the organization are viewed as a collection processes, which is called “process-point-of-view.” With this view, a map of detailed processes of the organization will emerge and the person who is in charge of BPR will look into any possibility of utilizing IT to change existing processes which should bring excellent savings or gains as a result. • Case studies were conducted through web sites, e-mail survey, and physical visits where possible.

15. 7.1 Best Practice Case #1: Bank SinoPac(Taiwan) • SinoPac is a commercial bank established in 1992 which is a SME in its size as a bank. The bank was growing rapidly and required new business platform based on information technology. Business process redesign was necessary since its business encompasses vast areas including China proper, Taiwan, Hong Kong, and USA. • SMEs do not have much expendable time to spend for BPR and, due to lack of money, need systems which can be used over and over again and operate under unexpected circumstances, and since SMEs can not afford to spend much time and money in training employees, the system must be easy to use and quickly learnable. • They developed such an information system which was called model Blue IT. This system brought up 30% increase in productivity, that is, savings in time and expense of business process operations were 30%. The model Blue IT was implemented on IBM WebSphere Application server.

16. 7.2 Best Practice Case #2: Commonwealth Bank of Australia(Australia) • Commonwealth bank is based in Sydney whose number of employees exceeds more than 35,000 and covers entire country of Australia. The bank spends more than AUSD$120million for temporary wages. • The current business processes allow hiring of temporary workers on the spot and had to pay for introduction fee to the human resource agency. • Too much time of regular employees was used to handle the management of temporary workers. Thus the bank hired human resource management system firm called peoplesoft and centralized hiring processes and got rid of inefficient processes. • The result was savings of AUSD$11million for 3 years and each branch office on average freed 3 regular workers’ time and was able to put them in more productive works.

17. 7.3 Best Practice Case #3: Heineken USA(USA) • Heineken USA is a subsidiary of Heineken of the Netherlands which mainly does distribution of Heineken beer in USA. Since 1995, Heineken USA has been operating distribution and advertising in domestic USA. The competition among imported beer companies got intensified starting from late 80s. • In order to survive the competition, Heineken USA conducted business process redesign using information technology. • HOPS(Heineken Operational Planning System) was implemented and effective in eliminating problematic business processes. • The biggest challenge to imported beer such as Heineken is the fact that it is difficult to adapt to the changing demand of consumers quickly. • This problem was overcome by establishing Internet-based Extranet which enabled the parent company to be aware of what’s going on in American market and act accordingly in real time. Thus the parent company was able to reduce time delay caused by delivery time from the Netherlands to America, which resulted in much fresher beer and reduced inventory with 10% increase in sales.

18. 8. Conclusion • The solution for SMEs in APEC member countries to achieve management innovation lies mainly with IT-enabled business process redesign plus e-business technology use. • Unlike BPR for large companies, BPR for SMEs requires somewhat different approach as following. First, the method has to be fast and effective. Second, it has to be reusable and flexible enough to cope with unexpected situation. Third, the system should be easy to use and quickly learnable. • In order to encourage BPR action in SMEs, government needs to educate executives on process point of view, the benefit of IT, and the possibility of market expansion through online trade utilizing e-business technology.

19. 8. Conclusion(cont.) • In summary, government can run an educational program for top executives of SMEs in which process point of view, business process redesign, IT mindset, and e-business technology are taught. • E-business technology can be a simple web site for PR purpose which then can be improved to include e-commerce capability. Advanced e-business technology such as e-CRM, e-SCM, Internet-based EDI, and Logistics and Order Management can be added later. • However this kind of educational program is not easy to implement for under-developed countries. • Creation of Informatization Frontier team whose members will be from well-developed countries is suggested since the team might contribute to the poor country for providing education as well as basic hardware, software, and communication devices.

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